Australian Dollar Falters as Signs Point towards Weaker Inflation
The latest TD Securities inflation survey did not offer the Australian Dollar any cause for confidence at the start of the week. As the estimate indicated that inflation contracted -0.1% on the month in January this left AUD exchange rates on the back foot, adding to bets that the Reserve Bank of Australia (RBA) will maintain a more dovish policy outlook. Confidence in the Australian Dollar was further dented by another sharp decline in building approvals, which slumped -22.5% on the year in December.
AUD exchange rates are likely to remain under pressure ahead of the RBA’s policy announcement this afternoon.
Slowing Construction Sector Dents Pound Demand
In another blow to confidence in the health of the UK economy January’s construction PMI fell short of forecast, dipping from 52.8 to 50.6. This sharp slowdown was largely thanks to an increased air of Brexit-based anxiety within the sector. With the odds of a no-deal Brexit still looking higher than investors would like the appeal of the Pound remains limited, especially in the face of evidence of a slowing domestic economy.
A similarly poor performance from tonight’s UK services PMI may see GBP exchange rates extend their recent run of losses further.
Euro Shakes Off Weak Eurozone Producer Price Index
Eurozone producer price index data failed to offer the Euro much encouragement overnight as price pressures continued to decline on the month. This suggests that inflation within the currency union is not picking up as policymakers would like. An unexpectedly weak Sentix investor confidence index also weighed heavily on the single currency, with sentiment slipping to its lowest level in four years. Even so, with market risk appetite generally limited the downside pressure on EUR exchange rates still proved limited for the time being.
If December’s Eurozone retail sales data disappoints, however, the Euro is likely to trend lower once again.
US Dollar Climbs in spite of Underwhelming Factory Orders
The mixed nature of November’s US factory orders figures was not enough to prevent USD exchange rates pushing higher last night. Although factory orders extended their slump, declining -0.6% on the month, investors remain confident in the underlying health of the US economy. A better-than-expected performance from January’s ISM New York Index lent support to the US Dollar, meanwhile, as the general sense of market risk appetite picked up.
Demand for the US Dollar could improve further tonight on the back of a solid ISM non-manufacturing composite index.
Canadian Dollar Softens as Oil Falls Back from Two-Month High
After hitting a two-month high oil prices came under renewed pressure yesterday, slumping sharply thanks to persistent worries over the global outlook. Even as supply decreased, as a result of US sanctions on Venezuela and OPEC production cuts, this could not overshadow concerns over ongoing trade tensions. This left the Canadian Dollar on the back foot as investors generally sold out of risk-sensitive assets at the start of the week.
In the absence of any fresh Canadian data CAD exchange rates may struggle to recover their losses in the near term.
Steady Building Permits Fail to Boost New Zealand Dollar
December’s New Zealand building permits data did not offer any particular encouragement to NZD exchange rates, even though growth remained fairly steady on the month. Signs of a resilient construction sector are not enough to outweigh market worries over the outlook of the wider New Zealand economy. Coupled with an increase in risk aversion this left the New Zealand Dollar lacking in support.
Another contraction in the ANZ commodity price index may drive NZD exchange rates to shed further ground this morning.
February 5th 09:30 NZD ANZ Commodity Price Index (JAN)
February 5th 14:30 AUD Reserve Bank of Australia Rate Decision 1.50%
February 5th 20:00 GBP Services PMI (JAN) 51
February 5th 21:00 EUR Eurozone Retail Sales (YoY) (DEC) 0.5%
February 6th 02:00 USD ISM Non-Manufacturing Composite (JAN) 57