Surprise Loss of Growth Momentum Dents Australian Dollar
As September’s Westpac leading index delivered a surprise contraction the mood towards the Australian Dollar continued to sour. Investors were disappointed to find that growth momentum had stalled on the month, raising fresh concerns over the resilience of the Australian economy. Signs of tensions between the US and China picking up again also weighed on AUD exchange rates as hopes of imminent trade deal progress faded.
While no change is forecast for today’s unemployment rate reading the Australian Dollar could still falter if the report highlights a weaker level of confidence within the labour market.
Pound Volatility Continues Thanks to Lack of Brexit Clarity
The Pound continued its volatile trading pattern overnight as UK and EU officials offered a mixed message on the subject of Brexit. Although early comments from EU sources suggested that a deal was likely ahead of the European Council summit this was soon countered by less optimistic signals from other officials. This general lack of clarity was not enough to prevent GBP exchange rates hitting fresh multi-month highs, although they ultimately struggled to maintain this bullishness for long.
Even if UK retail sales disappoint this evening the Pound could still strengthen on the back of the latest political developments.
Narrowed Eurozone Trade Surplus Limits Euro Upside
With trade tensions between the US and China showing renewed signs of escalation confidence in the outlook of the Eurozone economy continued to deteriorate. A sharp narrowing of August’s trade surplus, which dipped from 24.8 billion to 14.7 billion, highlighted the negative impact that trade worries have already had on the currency union. However, the Euro was still able to hold onto a relatively positive footing against its more risk-sensitive rivals last night.
EUR exchange rates could gain an extra boost if August’s Eurozone construction output strengthens in line with forecasts, suggesting a greater level of resilience within the economy.
US Dollar Shakes off Retail Sales Decline
An unexpected decline in US retail sales gave investors fresh cause for concern over the outlook of the world’s largest economy. The -0.3% drop in sales suggests that consumers are reigning in their spending in the face of ongoing trade tensions with China. However, while this weakness could give the Federal Reserve further encouragement to cut interest rates the impact on USD exchange rates proved limited. With markets in a more risk-averse mood the safe-haven US Dollar remained on an uptrend.
However, as the latest Philadelphia Fed manufacturing index is forecast to show a decline on the month USD exchange rates look vulnerable to selling pressure overnight.
Canadian Dollar Stumbles After Inflation Disappointment
The Canadian consumer price index fell short of forecast in September, holding steady at 1.9% on the year rather than picking up to 2.1% as anticipated. This disappointing result was accompanied by a sharp decline in the monthly inflation rate, which dipped from -0.1% to -0.4%. With inflationary pressure within the Canadian economy proving limited support for CAD exchange rates diminished as the likelihood of Bank of Canada (BOC) hawkishness decreased.
If August’s manufacturing sales data delivers a solid rebound in the wake of July’s contraction this could offer the Canadian Dollar a rallying point.
Solid Quarterly Inflation Fails to Boost New Zealand Dollar
Market risk aversion weighed heavily on NZD exchange rates yesterday as trade relations between the US and China showed fresh signs of deterioration. This diminished the impact of an unexpectedly improved quarterly consumer price index, which had picked up to 0.7% in the third quarter. As confidence in the outlook of the New Zealand economy remains limited demand for the New Zealand Dollar was generally lacking.
As long as global trade worries persist NZD exchange rates may struggle to return to an uptrend.
Data Releases
October 17th 10:30 AUD Unemployment Rate (SEP) 5.3%
October 17th 18:30 GBP Retail Sales ex Auto Fuel (MoM) (SEP) -0.1%
October 17th 19:00 EUR Eurozone Construction Output (YoY) (AUG) 2.6%
October 17th 22:30 CAD Manufacturing Sales (MoM) (AUG) 0.7%
October 17th 22:30 USD Philadelphia Fed Manufacturing Index (OCT) 8