Higher Inflation Expectations Limit Australian Dollar Upside
A sharp uptick in October’s consumer inflation expectations survey limited the appeal of the Australian Dollar. With inflationary pressure expected to pick up further over the coming year the odds of further Reserve Bank of Australia (RBA) policy action naturally increased. However, AUD exchange rates found fresh support amid speculation that US-China trade talks could still yield some manner of positive agreement.
The release of the RBA’s latest financial stability report could put additional pressure on the Australian Dollar if policymakers show greater signs of dovishness.
Surprise Growth Contraction Dents Pound
As August’s monthly gross domestic product fell short of forecast, clocking in at -0.1% rather than 0.0%, the mood towards the Pound continued to sour. Comments from Bank of England (BoE) Governor Mark Carney added to the bearish mood of GBP exchange rates as he noted that the underlying growth trend remains soft. Even so, the Pound was able to rebound overnight thanks to the renewed hopes of progress towards a Brexit deal.
Unless the joint statement by Boris Johnson and Irish leader Leo Varadkar translates into something more tangible, though, this GBP exchange rate rally may prove short-lived.
Falling German Exports Weigh Heavily on Euro Demand
Confidence in the outlook of the German economy continued to deteriorate on the back of August’s raft of trade data. A significant narrowing of the headline trade surplus accompanied a -1.8% drop in exports, reflecting the damage that weakened global trade conditions are causing. As French and Italian industrial production figures also proved dismal the Euro was left with little in the way of support.
Confirmation that the German consumer price index continued to ease in September could add to the softness of EUR exchange rates today.
US Dollar Slumps on Weaker Consumer Price Index Reading
US data proved generally disappointing last night, with the consumer price index failing to pick up as forecast in September. This suggests that inflationary pressure within the US economy is not mounting as Federal Reserve policymakers would like, to the detriment of the US Dollar. While the latest set of jobless claims figures showed some signs of improvement this was not enough to shore up USD exchange rates for the time being.
With the University of Michigan consumer sentiment index expected to weaken further tonight the US Dollar looks vulnerable to further losses.
Stronger House Prices Fail to Benefit Canadian Dollar
While August’s new housing price index showed unexpected improvement on the month this failed to encourage any particular demand for the Canadian Dollar. With prices still in decline on the year confidence in the underlying health of the housing market remained limited, keeping CAD exchange rates on the back foot. Although oil prices made some gains overnight this was not enough to boost the appeal of the Canadian Dollar.
Unless the labour market shows signs of tightening in September’s set of employment figures CAD exchange rates could see further losses heading into the weekend.
Rising Food Price Index Boosts New Zealand Dollar
Demand for the New Zealand Dollar picked up yesterday after a surprise uptick in the food price index. Although the index is not a major source of inflation data the improvement still encouraged bets that inflationary pressure within the New Zealand economy is strengthening. NZD exchange rates were quick to capitalise on this improvement, with the risk of imminent Reserve Bank of New Zealand (RBNZ) action diminishing.
Signs that the manufacturing sector is edging back towards a state of positive growth could give the New Zealand Dollar an additional boost.
Data Releases
October 11th 07:30 NZD Manufacturing PMI (SEP) 49.0
October 11th 16:00 EUR German Consumer Price Index (YoY) (SEP F) 1.2%
October 11th 22:30 CAD Unemployment Rate (SEP) 5.7%
October 12th 00:00 USD University of Michigan Sentiment Index (OCT) 92