Muted Response to US-China Deal Leaves Australian Dollar Softer
While home loans growth did not slow as dramatically as forecast in November worries over the outlook of the Australian housing market remained. The Australian Dollar also came under pressure thanks to the dismissive market reaction to the phase one US-China trade deal. As significant barriers to a phase two deal remain the official signing prompted little improvement in market risk appetite.
Any softening of the fourth quarter Chinese gross domestic product could see AUD exchange rates shedding further ground today.
Weaker BoE Credit Conditions Survey Fails to Drag on Pound
Investors found limited cause for confidence in the Bank of England’s (BoE) latest credit conditions survey, which showed a decline in demand for loans in the fourth quarter. This deterioration suggests that households and businesses adopted a cautious mentality in the face of political jitters and lingering Brexit-based uncertainty. Even so, this was not enough to push GBP exchange rates lower thanks to the already high odds of a BoE interest rate cut priced into the Pound.
A solid month of growth for UK retail sales may offer the Pound a rallying point this evening, with stronger consumer spending likely to shore up economic growth.
Evidence of ECB Optimism Limits Euro Downside
The mood towards the Euro largely improved on the back of the European Central Bank’s (ECB) December meeting minutes. As policymakers showed increased signs of optimism, noting evidence of economic stabilisation within the currency union, the risk of future monetary loosening eased. With the ECB looking set to leave policy on hold for longer the appeal of the single currency picked up.
Confirmation of a stronger Eurozone consumer price index may not be enough to keep the Euro from shedding some ground today, however.
Surge in Manufacturing Index Boosts US Dollar
January’s Philadelphia Fed manufacturing index offered an unexpectedly strong surge, leaping from 2.4 to 17. This sharp improvement encouraged a greater sense of confidence in the underlying health of the US manufacturing sector, suggesting that the economy started 2020 on a stronger footing. Solid growth in advance retail sales also offered a boost to the US Dollar, giving investors further cause for confidence in the outlook of the world’s largest economy.
However, any contraction in December’s industrial and manufacturing production figures could see the US Dollar stumble heading into the weekend.
Underwhelming Employment Report Limits Canadian Dollar Demand
While oil prices saw some positive growth overnight this was not enough to prevent the Canadian Dollar from softening against many of the majors. With markets still unconvinced by the prospect of a further improvement in US-China trade coming any time soon the risk-sensitive currency struggled to find support. A smaller-than-expected uptick in the ADP employment change figure also put a dampener on CAD exchange rates.
Unless market risk appetite improves over the course of the day the Canadian Dollar looks set to remain out of favour.
New Zealand Dollar Stumbles on Card Spending Decline
The lacklustre market response to the phase one US-China trade agreement limited the strength of the New Zealand Dollar yesterday. With a vast swath of US tariffs on Chinese produce still in place the ultimate impact of the deal looks less dramatic than markets had hoped. Coupled with a surprise monthly decline in New Zealand retail card spending this dragged on NZD exchange rates.
With forecasts pointing towards a slowdown in December’s manufacturing PMI the New Zealand Dollar could shed further ground this morning.
Data Releases
January 17th 07:30 NZD Manufacturing PMI (DEC) 50.6
January 17th 19:30 GBP Retail Sales ex Auto Fuel (MoM) (DEC) 0.7%
January 17th 20:00 EUR Eurozone Consumer Price Index (YoY) (DEC) 1.3%
January 17th 14:15 USD Industrial Production (MoM) (DEC) -0.2%