Improved Consumer Sentiment Fails to Prevent Australian Dollar Losses
Australian sentiment showed fresh signs of improvement as August’s Westpac consumer confidence index rebounded 3.6% on the month. AUD exchange rates also benefitted from a surprise uptick in the second quarter wage price index, which accelerated 0.6% on the quarter. However, the Australian Dollar struggled to hold onto its bout of gains thanks to the Trump administration’s latest attack on the Federal Reserve. With a US interest rate cut looking increasingly likely the strength of AUD exchange rates quickly faded.
Further Australian Dollar losses could be on the cards today if July’s labour market data shows signs of weakness.
Higher UK Inflation Shores up Pound
GBP exchange rates received an unexpected boost from July’s UK consumer price index data as inflation proved stronger than forecast. The Pound strengthened across the board after the inflation rate picked up from 2.0% to 2.1% on the year, defying expectations of an easing in price pressures. This fuelled speculation that the Bank of England (BoE) could still raise interest rates before the end of the year, in spite of ongoing Brexit-based uncertainty.
However, the mood towards the Pound could sour if the latest set of UK retail sales figures point towards a decline in consumer confidence.
Second Quarter Contraction Raises German Recession Fears
Fears of a potential German recession mounted further as the quarterly German gross domestic product contracted. As growth fell -0.2% during the second quarter, reflecting a deterioration in global trade conditions, this pushed the Euro lower across the board. Although the overall Eurozone growth rate remained in positive territory this was not enough to ease concerns over the economic outlook. A sharp contraction in industrial output added to the bearish mood, meanwhile.
In the absence of any fresh Eurozone data EUR exchange rates may struggle to return to a positive footing.
US Dollar Falters as Political Pressure on Fed Increases
Although the latest US import and export price indexes bettered expectations this only had a limited impact on the US Dollar overnight. USD exchange rates instead gained traction on the back of the Trump administration’s latest criticism of the Federal Reserve. With political pressure on the central bank increasing markets remain wary of the potential for another imminent interest rate cut. While looser monetary policy would reduce the appeal of the US Dollar the consequent decline in market risk appetite helped to boost USD exchange rates.
A softened advance retail sales figure may drive some US Dollar selling pressure overnight, though.
Lack of Oil Inventories Decline Dampens Canadian Dollar Sentiment
The appeal of the Canadian Dollar diminished as a result of the general decline in market confidence last night. With the Fed looking at increasing risk of cutting interest rates again the outlook for the risk-sensitive Canadian Dollar naturally diminished. As US crude oil inventories failed to fall as forecast this also limited the potential for CAD exchange rate gains.
Unless the ADP payroll estimate suggests that the labour market is tightening the Canadian Dollar could fall further out of favour.
Deteriorating Risk Appetite Drags on New Zealand Dollar
The New Zealand Dollar struggled to find much support thanks to a lack of fresh domestic data. While signs of a potential thaw in US-China trade relations boosted market risk appetite this optimism proved short-lived. With the Fed looking likely to return to a dovish policy bias in the imminent future NZD exchange rates were exposed to a fresh bout of selling pressure.
Without another upswing in market sentiment the New Zealand Dollar may remain on a weaker footing.
Data Releases
August 15th 11:30 AUD Unemployment Rate (JUL) 5.2%
August 15th 18:30 GBP Retail Sales ex Auto Fuel (YoY) (JUL) 2.3%
August 15th 22:30 CAD ADP Payroll Estimate (JUL)
August 15th 22:30 USD Advance Retail Sales (MoM) (JUL) 0.3%