Stronger Chinese Exports Offer Limited Support to Australian Dollar
While Chinese export volumes saw a sharp increase on the year in December this failed to offer the Australian Dollar any significant boost. Worries over the outlook of the Australian economy remained, giving investors less incentive to shore up AUD exchange rates at this stage. The potential for the next phase of US-China trade talks to drag on also limited the appeal of the risk-sensitive currency.
In the absence of fresh domestic data the strength of the Australian Dollar looks set to remain muted today.
Pound Recovers Ground as BoE Easing Odds Stabilise
As the impact of the recent dovish Bank of England (BoE) comments started to wear off the Pound was able to recover some of its lost ground. Even so, GBP exchange rates remained under pressure thanks to the heightened odds of a January interest rate cut. With a significant degree of uncertainty still surrounding the issue of the UK’s future relationship with the EU the potential for Pound gains remained limited.
Unless December’s consumer price index data points towards strengthening inflationary pressure within the UK economy GBP exchange rates are likely to extend their recent downtrend.
Euro Muted in Spite of Signs of ECB Optimism
Comments from European Central Bank (ECB) board member Yves Mersch were not enough to shore up the Euro last night. While Mersch noted that the Eurozone economy has shown ‘good signs of stabilisation’ markets still see little likelihood of the central bank reversing its monetary loosening in the near future. As a result, the single currency struggled to find much traction against its rivals during Tuesday’s European session.
Confirmation that the German economy saw a pronounced loss of momentum in 2019 could see the Euro sliding lower across the board.
Rising Inflation Fails to Boost US Dollar Appeal
Even though December’s headline consumer price index accelerated from 2.1% to 2.3% as forecast USD exchange rates struggled to capitalise on the improvement. As the measure is not the Fed’s preferred gauge of inflationary pressure the ultimate impact of the improvement could prove limited. A sharper-than-expected decline in the NFIB small business optimism index put additional pressure on the US Dollar.
A similarly underwhelming performance from January’s Empire manufacturing index could drive USD exchange rates into a slump tonight.
Canadian Dollar Falters as Risk Appetite Diminishes
Support for the Canadian Dollar proved rather limited overnight thanks to a general easing in market risk appetite. Although the US and China are set to sign off their phase one trade agreement focus increasingly turned towards the next phase of talks between the two. As a phase two agreement looks set to take significantly more time to materialise this left investor optimism to diminish.
Even if oil prices stage further gains over the course of the day this may not be enough to offer the Canadian Dollar a rallying point.
Construction Sector Weakness Drags on New Zealand Dollar
A sharp monthly decline in building permits put fresh pressure on the New Zealand Dollar, suggesting persistent weakness within the domestic construction sector. However, as anticipation for the US-China phase one trade agreement mounted this helped to limit the downside potential of NZD exchange rates.
If December’s food price index underwhelms, though, this could see the New Zealand Dollar falling further out of favour this morning.
Data Releases
January 15th 07:45 NZD Food Price Index (MoM) (DEC)
January 15th 19:00 EUR German Gross Domestic Product NSA (YoY) (2019) 0.6%
January 15th 19:30 GBP Consumer Price Index (YoY) (DEC) 1.5%
January 15th 23:30 USD Empire Manufacturing Index (JAN) 3.55