Australian Dollar Benefits from Inflation Gauge Uptick
An uptick in the monthly TD Securities inflation gauge gave the Australian Dollar a boost as the risk of Reserve Bank of Australia (RBA) dovishness appeared to ease. Even so, while inflationary pressure showed signs of picking up AUD exchange rates soon stumbled. Although the US and China look set to sign their phase one trade agreement imminently doubts remain over the timescale of any phase two deal.
Any weakness in the latest raft of Chinese trade data could see the Australian Dollar fall further out of favour this morning.
Pound Slides on Surprise UK Growth Contraction
Worries over the health of the UK economy picked up once again last night after November’s gross domestic product report disappointed forecasts. A surprise -0.3% monthly contraction offered investors particular cause for concern, with both the manufacturing and service sectors showing signs of decline. Comments from Bank of England (BoE) policymakers continued to weigh on the Pound, meanwhile, as the odds of an imminent interest rate cut rose sharply.
Ahead of tomorrow’s UK consumer price index data the upside potential of GBP exchange rates looks set to remain limited.
Latest Signs of Weak German Inflation Drag on Euro
December’s German wholesale price index proved relatively underwhelming, with price pressures found to have stagnated on the month. As this weak showing points towards a weaker level of inflationary pressure within the Eurozone’s powerhouse economy demand for the Euro softened in the wake of the data. A general sense of market malaise only helped the single currency to make gains against some of its risk-sensitive rivals.
Speculation over the policy outlook of the European Central Bank (ECB) may drag on the Euro today as markets weigh up the odds of future policy action.
Stronger Consumer Inflation Expectations Support US Dollar
In spite of increasing market jitters the US Dollar saw a mixed performance at the start of the week. After the underwhelming nature of December’s non-farm payrolls report the appeal of the US Dollar remained weakened, limiting the potential for a stronger recovery. As December’s consumer inflation expectations picked up this offered an additional boost to the US Dollar as the risk of future Federal Reserve monetary loosening looked increasingly limited.
A stronger US consumer price index may offer USD exchange rates a boost overnight, even though this is not the Fed’s preferred gauge of inflation.
Signs of Growing Business Optimism Limit Canadian Dollar Downside
The Bank of Canada’s (BOC) latest business outlook survey suggested that business sentiment was generally positive in the final three months of 2020. This offered the Canadian Dollar a boost against its rivals, with the survey likely to give BOC policymakers greater incentive to maintain a neutral stance. However, with oil prices slipping in the absence of market risk appetite CAD exchange rates struggled to make any significant headway overnight.
Without any swing in market optimism the Canadian Dollar may struggle to hold onto a positive footing over the course of the day.
US-China Trade Agreement Anticipation Fails to Shore up New Zealand Dollar
As anticipation for the signing of the phase one US-China trade agreement grew this offered a degree of support to the New Zealand Dollar. However, this sense of market optimism failed to keep NZD exchange rates on a positive footing for long thanks to lingering worries over the next stage of trade talks between the two nations.
A solid monthly increase in building permits could encourage the New Zealand Dollar to recover some ground this morning.
Data Releases
January 14th 07:00 NZD Building Permits (MoM) (NOV) 2.1%
January 14th 23:30 USD Consumer Price Index (YoY) (DEC) 5.8%