Better-Than-Expected Leading Index Limits Australian Dollar Downside
A slight improvement in the latest Westpac leading index helped to give the Australian Dollar a leg up yesterday. Even though the index remained in negative territory investors were encouraged by the modest uptick from -0.2% to -0.09% on the month. While the Australian economy still appears on track to slow in the fourth quarter this was not enough to keep AUD exchange rates from trending higher.
With no change forecast for November’s unemployment rate, though, the potential for further Australian Dollar gains could prove limited.
Steady UK Inflation Weighs on Pound Appeal
November’s UK consumer price index held steady at a three-year low of 1.5% on the year, still falling short of the Bank of England’s (BoE) 2% target. This left the Pound under pressure overnight as the odds of a 2020 interest rate cut appeared to increase. Anxiety over the prospect of a potential cliff-edge Brexit continued to weigh on GBP exchange rates, meanwhile, erasing the gains seen in the wake of the general election result.
If the BoE offers any dovish signals at its final meeting of 2019 this could drag the Pound lower still across the board.
Euro Struggles to Capitalise on Improving German Business Confidence
Although December’s German IFO business sentiment survey showed a solid improvement in confidence this failed to give the Euro much of a boost. Even with the business climate index strengthening from 95.1 to 96.3 investors remained wary of the possibility of a fourth quarter slowdown from the Eurozone’s powerhouse economy. Underwhelming Eurozone construction output data also put a dampener on the single currency.
Fresh comments from European Central Bank (ECB) policymakers could provoke further weakness for EUR exchange rates as markets look for evidence of greater dovishness.
US Dollar Support Muted in Spite of Fed Comments
In the absence of any notable US data releases USD exchange rates saw limited support last night. With markets in a more risk-positive mood the appeal of the US Dollar was muted, even though it held onto a positive footing against its less risk-sensitive rivals. Less dovish commentary from New York Fed President John Williams also helped to diminish the degree of pressure on USD exchange rates for the time being.
Any easing in the Philadelphia Fed manufacturing index may see the US Dollar fall out of favour tonight, though.
Rising Inflation Shores up Canadian Dollar
As the headline inflation rate accelerated from 1.9% to 2.2% on the year in November the Canadian Dollar found fresh cause for confidence. This latest uptick could give the Bank of Canada (BOC) greater incentive to leave interest rates on hold for longer, limiting the downside potential of CAD exchange rates. Even so, as the monthly inflation figure proved less encouraging in nature the Canadian Dollar struggled to make any significant headway against its rivals.
A solid month of wholesale trade sales could help CAD exchange rates to gain further ground overnight.
Widened Current Account Deficit Fails to Prevent NZD Gains
While the New Zealand current account deficit still widened in the third quarter this was not enough to keep the New Zealand Dollar on the back foot today. A solid level of market risk appetite helped to shore up NZD exchange rates in the wake of the data, in spite of lingering negativity over the outlook of the domestic economy.
The mood towards the New Zealand Dollar could pick up sharply this morning, however, if the third quarter gross domestic product shows a fresh acceleration in growth.
Data Releases
December 19th 07:45 NZD Gross Domestic Product (YoY) (3Q) 2.4%
December 19th 10:30 AUD Unemployment Rate (NOV) 5.3%
December 19th 22:00 GBP Bank of England Rate Decision 0.75%
December 19th 23:30 CAD Wholesale Trade Sales (MoM) (OCT) 1.1%
December 19th 23:30 USD Philadelphia Fed Manufacturing Index (DEC) 8