Australian Dollar Slides as RBA Leaves Door Open for Rate Cuts

Australian Dollar Sheds Ground After Dovish RBA Minutes

Demand for the Australian Dollar generally eased after the release of the Reserve Bank of Australia’s (RBA) most recent set of meeting minutes. As policymakers explained their decision to cut interest rates to a fresh record low they appeared to leave the door open for further policy action. With markets anxious over the prospect of additional RBA interest rate cuts coming sooner rather than later AUD exchange rates were left on the back foot.

Unless the Westpac leading index points towards a stronger level of economic activity in September the mood towards the Australian Dollar is likely to remain muted today.

Barnier’s Brexit Ultimatum Fails to Dent Pound

While chief EU negotiator Michel Barnier delivered an ultimatum for Boris Johnson to agree to a proposed customs border falling in the Irish Sea this failed to dent the Pound. Although EU officials expressed increasing doubt over the likelihood of a deal being reached before the end of the week GBP exchange rates remained on a positive trend. As investors still see hopes of a potential agreement the Pound continued to shake off Brexit-based anxiety overnight.

An uptick in September’s UK consumer price index could offer GBP exchange rates a stronger rallying point, with forecasts pointing towards a solid uptick in inflationary pressure.

Negative Eurozone Economic Sentiment Weighs Down Euro

Even though the Eurozone ZEW economic sentiment index bettered forecasts in October this was not enough to shore up the Euro. While the index avoided a forecast slump to -33.0 sentiment still weakened on the month, falling deeper into negative territory. This suggests that the outlook of the Eurozone economy remains muted heading into the fourth quarter, raising concerns about the likelihood of a sustained growth slowdown.

With the Eurozone trade surplus set to narrow in response to deteriorating global trade conditions the single currency may struggle to find support in the near term.

US Dollar Recovers Ground as Risk Appetite Fades

As market risk appetite remained generally limited in the wake of a higher Chinese inflation rate the US Dollar gained ground against many of the majors. Although the Federal Reserve still looks likely to cut interest rates again before the end of the month USD exchange rates found a fresh leg up. Heightened demand for safe-haven assets continued to buoy the US Dollar throughout last night’s European session.

However, a slowdown in US retail sales could see the US Dollar fall out of favour this evening as markets continue to gauge the impact of US protectionism on the health of the domestic economy.

OPEC Supply Cut Speculation Not Enough to Boost Canadian Dollar

Talk of further Organisation of the Petroleum Exporting Countries (OPEC) supply cuts was not enough to give the oil market a boost last night. With Brent crude lurching lower once again the commodity-correlated Canadian Dollar proved rather lacking in support. As the earlier sense of market risk appetite continued to fade, driven by the latest Chinese data, CAD exchange rates stumbled.

Even so, as forecasts point towards a solid uptick from the Canadian consumer price index the appeal of the Canadian Dollar could pick up tonight.

New Zealand Dollar Falters Ahead of Inflation Data

The decline in market risk appetite put pressure on the New Zealand Dollar yesterday, leaving investors with little reason to buy into the risk-sensitive currency. Growing anticipation ahead of the third quarter consumer price index report also limited the strength of NZD exchange rates. With the risk of further Reserve Bank of New Zealand (RBNZ) policy action still hanging over the minds of investors NZD exchange rates remained on the back foot.

If the headline inflation rate eases from 1.7% to 1.4% as anticipated the mood towards the New Zealand Dollar looks set to sour.

Data Releases

October 16th 07:45 NZD Consumer Price Index (YoY) (3Q) 1.4%
October 16th 09:30 AUD Westpac Leading Index (MoM) (SEP) 0%
October 16th 18:30 GBP Consumer Price Index (YoY) (SEP) 1.8%
October 16th 19:00 EUR Eurozone Trade Balance (AUG) 17.5 billion
October 16th 22:30 CAD Consumer Price Index (YoY) (SEP) 2.1%
October 16th 22:30 USD Advance Retail Sales (MoM) (SEP) 0.3%

Louisa Heath