Dovish ECB Meeting Minutes Dent Euro Appeal

Mixed Lending Data Limits Australian Dollar Appeal

Another month of contraction in Australian investment lending failed to keep AUD exchange rates under pressure yesterday. Although the lending data fell significantly short of forecasts of a modest uptick this was balanced out by an improved home loans figure. While signs of confidence within the Australian economy remain limited, though, the dovish nature of the Federal Reserve’s latest communication helped to boost the risk-sensitive Australian Dollar.

As markets continue to price in the odds of greater Fed dovishness this may help AUD exchange rates to stay on a positive footing today.

BoE Brexit Warning Not Enough to Dent Pound

While Bank of England (BoE) Governor Mark Carney warned that a no-deal Brexit could led to substantial volatility this was not enough to weigh down the Pound. Investors instead took encouragement from the BoE’s latest Financial Stability Report, which indicates that the banking sector at least is resilient enough to withstand a Brexit shock. A surprise improvement in the RICS house price index also offered a boost to GBP exchange rates yesterday, even though price growth remained in a state of contraction.

Ongoing speculation over the risk of Parliament being prorogued in order to force a no-deal scenario could limit the appeal of the Pound, however.

Increasingly Dovish ECB Outlook Drags on Euro

Demand for the single currency remained generally limited ahead of the release of the European Central Bank’s (ECB) June meeting minutes. As the tone of policymakers proved distinctly dovish in nature this put further pressure on EUR exchange rates overnight, with the odds of future monetary loosening rising. Although an imminent interest rate cut still appears unlikely the prospect of a persistent dovish bias weighed heavily on the mood towards the Euro.

Another month of contraction for the Eurozone industrial production data may add to the bearishness of EUR exchange rates this evening.

Higher Core Inflation Reading Dents Odds of July Fed Interest Rate Hike

A surprise increase in June’s core consumer price index reading helped to shore up the US Dollar last night. As the index picked up from 2.0% to 2.1% on the year this suggests that inflationary pressure within the US economy is not as weak as previously thought. Although the CPI is not the Fed’s preferred measure of inflation this stronger showing still cast some doubt over the likelihood of a sharp imminent interest rate cut.

Any improvement in tonight’s producer price index figures could further diminish the odds of greater Fed dovishness, offering USD exchange rates an additional boost.

Disappointing Housing Price Index Weighs Down Canadian Dollar

The Canadian Dollar fell further out of favour during Thursday’s European session as the new housing price index data for May disappointed expectations. Defying hopes of an improvement the price index instead contracted -0.1% on the month, suggesting continued weakness within the Canadian housing market. This underlined the Bank of Canada’s (BOC) cautious optimism, leaving CAD exchange rates on the back foot.

In the absence of any fresh domestic data the Canadian Dollar may struggle to return to a positive footing tonight.

New Zealand Dollar Trends Higher in spite of Weak Card Spending

While the latest New Zealand retail card spending data failed to improve as hoped, showing a stagnation on the month, NZD exchange rates still gained ground yesterday. Even though confidence in the underlying health of the domestic economy remains limited the New Zealand Dollar benefitted from an increase in general market risk appetite. The dovishness of the Federal Reserve continued to encourage demand for higher-yielding assets.

As June’s manufacturing PMI is forecast to show a solid increase in activity on the month this could offer NZD exchange rates an additional boost this morning.

Data Releases

July 12th 08:30 NZD Manufacturing PMI (JUN) 53.1
July 12th 19:00 EUR Eurozone Industrial Production (YoY) (MAY) -1.6%
July 12th 22:30 USD Producer Price Index (YoY) (JUN) 1.6%

Louisa Heath