Muted Leading Index Limits Australian Dollar Appeal
Another monthly decline in the Westpac leading index left the Australian Dollar on the back foot yesterday. Although the index only saw a modest dip on the month the ongoing contraction in growth momentum weighed heavily on confidence in the economic outlook. This weakness raises the odds of the Reserve Bank of Australia (RBA) cutting interest rates to a fresh record low sooner rather than later, eroding support for AUD exchange rates.
The Australian Dollar could fall further out of favour this morning if June’s raft of employment data fails to impress, suggesting that the labour market remains looser than policymakers would like.
Brexit Jitters Overshadow Steady UK Inflation
A steady showing from the UK consumer price index failed to lift the Pound out of its slump overnight. While the headline 2% inflation rate matches the Bank of England’s (BoE) target investors were concerned by the stagnation in the monthly figure. With underlying signs suggesting that price pressures are weakening GBP exchange rates struggled to find any measure of support. Lingering anxiety over Brexit also kept the Pound under pressure, meanwhile.
If UK retail sales picked up in June, though, this could offer GBP exchange rates a rallying point this evening.
Surprise Inflation Uptick Fails to Boost Euro
While June’s finalised Eurozone consumer price index saw a surprise upward revision demand for the Euro remained generally limited. As inflation of 1.3% still falls some way short of the European Central Bank’s (ECB) 2% target the odds of monetary loosening remain high. A continued decline in Eurozone construction output also left investors with little incentive to favour the single currency, given existing anxiety over the economic outlook.
Without the support of fresh Eurozone data today EUR exchange rates look set to remain under pressure.
Weak Housing Data Weighs on US Dollar
The US Dollar stumbled overnight as June’s building permits and housing starts figures both surprised to the downside. Confidence in the domestic housing market weakened sharply in response to the data, with the construction sector also showing signs of weakness. As this could encourage Federal Reserve policymakers to maintain a dovish policy outlook this saw USD exchange rates trending lower, bracing against the prospect of further interest rate cuts.
Even so, a solid rebound from July’s Philadelphia Fed business outlook index may encourage USD exchange rates to recover some of their lost ground.
Canadian Dollar Stumbles on Weakening Inflation
As June’s consumer price index eased from 2.4% to 2.0% as forecast this limited the appeal of the Canadian Dollar. However, as the monthly inflation rate showed a smaller decline than forecast this helped to limit the downside potential of CAD exchange rates. A solid rebound in monthly manufacturing sales also lent support to the Canadian Dollar last night, suggesting that the domestic outlook is not as weak as policymakers fear.
Ahead of tomorrow’s Canadian retail sales data support for CAD exchange rates could ease, however.
Improved Inflation Continues to Support New Zealand Dollar
The New Zealand Dollar continued to benefit from Tuesday’s positive consumer price index data, remaining on a positive footing against its rivals. With domestic inflation picking up, in spite of the weaker nature of other recent data, NZD exchange rates strengthened thanks to the weaker odds of imminent Reserve Bank of New Zealand (RBNZ) policy action.
However, with no fresh domestic data set for release this week the New Zealand Dollar may struggle to hold onto its latest gains for long.
Data Releases
July 18th 11:30 AUD Unemployment Rate (JUN) 5.2%
July 18th 18:30 GBP Retail Sales (YoY) (JUN) 2.6%
July 18th 22:30 USD Philadelphia Fed Business Outlook (JUL) 5.0