Australian Dollar Slips on Dovish RBA Minutes
December’s Reserve Bank of Australia (RBA) meeting minutes fuelled speculation that the central bank could cut interest rates as soon as its February meeting, dragging the Australian Dollar down. With the RBA showing increased signs of pessimism over the wage outlook markets moved to price in higher odds of an imminent rate cut. With market risk appetite also diminishing there was little support for AUD exchange rates yesterday.
Another negative Westpac leading index may keep the Australian Dollar on the back foot this morning.
Higher Odds of Brexit Cliff-Edge Drag Down Pound
The mood towards the Pound soured dramatically as the odds of a potential cliff-edge Brexit surged. With Boris Johnson reportedly moving to eliminate the possibility of a further extension of the Brexit deadline the risk of a no-deal scenario increased sharply. This disappointed investors who had banked on a Conservative majority leading to a more moderate Brexit stance from Johnson. As UK wage growth data also disappointed GBP exchange rates were left to trend sharply lower across the board.
An easing in the headline UK inflation rate could put additional pressure on the Pound as the odds of a Bank of England (BoE) interest rate cut rise.
Widened Eurozone Trade Surplus Boosts Euro
October’s Eurozone trade balance saw the surplus unexpectedly widen from 18.7 billion to 28 billion, suggesting a solid level of trade activity. With recent US-China trade tensions showing little sign of weighing on Eurozone trade investors were encouraged to buy into the Euro. Even so, the lingering threat of fresh US tariffs on French produce still cast a shadow over the trade data as fears of a fourth quarter slowdown persist.
If December’s German ZEW business sentiment survey highlights an increased sense of confidence the single currency looks set to extend its gains today.
US Dollar Benefits from Higher Production Figures
Sharp monthly increases in industrial and manufacturing production helped to keep the US Dollar on a positive footing during Tuesday’s European session. As November’s capacity utilisation index also showed a solid improvement, pointing towards greater economic confidence, USD exchange rates saw limited downside. Although the year-on-year production figures left something to be desired worries over the health of the world’s largest economy temporarily eased, to the benefit of the US Dollar.
Fresh commentary from Federal Reserve policymakers could put a dampener on USD exchange rates in the near term, though.
Manufacturing Sales Slump Limits Canadian Dollar Appeal
Confidence in the outlook of the Canadian economy took a fresh blow last night as October’s manufacturing sales saw a -0.7% drop on the month. This weak reading disappointed forecasts of a stagnant month of sales, suggesting that economic activity continued to slow at the start of the fourth quarter. However, the Canadian Dollar was still able to hold onto a positive footing against many of the majors thanks to their relative weakness.
An uptick in the headline Canadian consumer price index may encourage CAD exchange rates to push higher tonight.
Negative Business Confidence Continues to Weigh on New Zealand Dollar
Another negative month for the ANZ business confidence index left NZD exchange rates on the back foot. Although the index picked up from -26.4 to -13.2 on the month this was not enough to encourage investors, with signs still pointing towards weak economic momentum in the final months of 2019. A general deterioration in market risk appetite also put pressure on the New Zealand Dollar overnight.
If the third quarter current account deficit widens as forecast this morning NZD exchange rates look set to shed further ground.
Data Releases
December 18th 07:45 NZD Current Account (3Q) -6.3 billion
December 18th 09:30 AUD Westpac Leading Index (MoM) (NOV) -0.1%
December 18th 19:00 EUR German IFO Business Climate Index (DEC) 95.5
December 18th 19:30 GBP Consumer Price Index (YoY) (NOV) 1.4%
December 18th 23:30 CAD Consumer Price Index (YoY) (NOV) 2.2%