Optimistic RBNZ Prompts New Zealand Dollar Surge

Signs of Slowing Infection Rate Lift Australian Dollar

Evidence that the infection rate of the Wuhan coronavirus, officially known as Covid-19, had begun to slow encouraged a general sense of market optimism yesterday. As China saw its lowest daily increase in infections since January investors were encouraged to bet on the prospect of the disease’s impact ultimately proving more limited than initially feared. This offered a lift to the Australian Dollar even as some experts urged continued caution.

A lower consumer inflation expectations figure for February could see AUD exchange rates stumble this morning, however.

Pound Struggles for Direction Ahead of House Price Data

In the wake of Tuesday’s mixed UK gross domestic product report the Pound struggled to find any major direction against its rivals. Support for GBP exchange rates proved muted as markets continued to weigh up the likelihood of the economy bouncing back from its weak fourth quarter performance in the months ahead.

Even so, a stronger showing from the RICS house price index may offer the Pound a boost as a fresh uptick would suggest an improvement in January’s consumer confidence.

Sharp Drop in Eurozone Industrial Production Dents Euro

The outlook of the Eurozone economy continued to weaken thanks to an unexpectedly sharp downturn in December’s industrial production figures. Following on from a contraction in German and Italian production, the overall Eurozone reading showed a drop of -2.1% on the month. This suggests that the currency union continued to feel the impact of weaker global trade at the end of 2019.

Unless the latest European Commission forecasts point towards a greater level of optimism in the economic outlook the Euro looks set to remain on the back foot.

Signs of Fed Caution Weigh on US Dollar

Demand for the US Dollar diminished in the wake of Federal Reserve Chair Jerome Powell’s latest commentary, which showed unexpected signs of dovishness. As Powell warned that the economic disruption caused by Covid-19 could prompt the central bank to cut interest rates again USD exchange rates weakened. The general improvement in market sentiment also put a dampener on the safe-haven currency.

While the consumer price index is not the Fed’s preferred measure of inflation an uptick in tonight’s reading may still shore up USD exchange rates.

Oil Price Jump Boosts Canadian Dollar

A strong resurgence in oil prices, driven by reduced fears about the spread of Covid-19, helped to lift the Canadian Dollar overnight. News that the UN voted to extend its oil sanctions against Libya added to the bullish mood of the oil markets, meanwhile. With Brent crude climbing more than 3% on the day’s opening levels CAD exchange rates found fresh support.

However, if profit taking sees the price of oil start to slide back this could dent the Canadian Dollar in the near term.

Upbeat RBNZ Assessment Shores up New Zealand Dollar

The Reserve Bank of New Zealand (RBNZ) offered a confident note as it indicated its willingness to leave interest rates on hold unless the impact of the Covid-19 outbreak proves larger than anticipated. As long as the New Zealand economy appears capable of shaking off negative global headwinds NZD exchange rates could hold onto a stronger footing.

As the impact of the RBNZ’s commentary fades, however, the New Zealand Dollar may experience some renewed selling pressure.

Data Releases

February 13th 10:00 AUD Consumer Inflation Expectation (FEB) 4.3%
February 13th 10:01 GBP RICS House Price Balance (JAN) 3.0%
February 13th 20:00 EUR European Commission Forecasts
February 13th 23:30 USD Consumer Price Index (YoY) (JAN) 2.4%

Louisa Heath

louisa.heath@torfx.com


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