Australian Dollar Softens Thanks to Muted Leading Index
January’s Westpac leading index continued to paint an underwhelming picture of the Australian economy, still pointing towards muted growth. This left the Australian Dollar on a weaker footing against its rivals yesterday, even as market anxiety over the Covid-19 outbreak showed some fresh signs of easing. With the economy still looking at risk of shedding fresh momentum in the first quarter AUD exchange rates struggled to find support.
With forecasts suggesting an uptick in January’s unemployment rate the Australian Dollar could fall further out of favour this morning.
UK Inflation Uptick Weighs on Pound
Demand for the Pound weakened overnight in spite of the headline UK consumer price index picking up from 1.3% to 1.8% on the year. While inflation moved closer to the Bank of England’s (BoE) 2% target investors failed to take encouragement from the data, especially as the monthly reading showed a fresh contraction. With inflationary pressure still looking relatively muted the risk of the BoE cutting interest rates in the months ahead remains, to the detriment of the Pound.
However, if January’s retail sales data shows a solid rebound in consumer spending this may offer GBP exchange rates a rallying point.
Slump in Construction Output Drags on Euro
The Eurozone economy continued to demonstrate signs of weakness as the latest construction output figure showed a surprise -3.7% contraction. This sharp decline in construction sector activity added to existing anxiety over the health of the currency union, highlighting the struggle it faced in the fourth quarter of 2019. Even so, a widening of December’s current account surplus helped to limit the potential for EUR exchange rate losses.
Fresh signs of dovishness in the European Central Bank’s (ECB) meeting minutes may see the Euro come under greater pressure tonight.
Market Risk Appetite Recovery Dampens US Dollar Demand
Hopes that the spread of the Covid-19 outbreak could be easing limited the appeal of the US Dollar last night as market risk appetite picked up. A mixed set of US construction data also put a dampener on USD exchange rates. While building permits saw a solid increase on the month in January this was accompanied by a sharp drop in housing starts, pointing towards continued weakness within the sector.
A softer Philadelphia Fed manufacturing index could see the US Dollar shedding further ground tonight as confidence in the world’s largest economy falters.
Higher Inflation Rate Limits Canadian Dollar Appeal
The Canadian consumer price index picked up further than forecast in January, accelerating from 2.2% to 2.4% on the year. While this pushes the inflation rate higher above the Bank of Canada’s (BOC) 2% target this failed to weigh on CAD exchange rates overnight. With market risk appetite generally improving the Canadian Dollar was able to hold onto a positive footing against its rivals.
In the absence of any fresh domestic data today, however, CAD exchange rates could easily return to the back foot.
New Zealand Dollar Struggles Ahead of Producer Price Index
Support for the New Zealand Dollar proved muted on Wednesday in spite of market risk appetite showing some signs of improvement. With New Zealand data lacking from the calendar worries over the economic outlook persisted, limiting the potential for NZD exchange rates to gain ground.
As the fourth quarter producer price index figures look set to show a deterioration on the quarter the appeal of the New Zealand Dollar may weaken further this morning.
Data Releases
February 20th 07:45 NZD Producer Price Index Output (QoQ) (4Q) 0.3%
February 20th 10:30 AUD Unemployment Rate (JAN) 5.2%
February 20th 19:30 GBP Retail Sales ex Auto Fuel (MoM) (JAN) 0.8%
February 20th 22:30 EUR European Central Bank Meeting Minutes (JAN)
February 20th 23:30 USD Philadelphia Fed Business Outlook (FEB) 11