US Dollar Trends Lower in Spite of Rising Inflation

Australian Dollar Shrugs off Covid-19 Worries

In the absence of any significant data, the Australian Dollar was still able to push higher against many of the majors on Friday.

While doubts over the health of the economic outlook persisted in the face of ongoing Covid-19 restrictions in Melbourne, this did little to dent AUD exchange rates. Faltering demand for the US Dollar improved the appeal of the Australian Dollar, with a decline in safe-haven demand boosting the risk-sensitive currency.

Ahead of the release of the Reserve Bank of Australia’s (RBA) latest set of meeting minutes, the ‘Aussie’ may hold onto its positive footing as markets bet on less dovish signs.

 

Pound Extends Bearish Run as Brexit Fears Mount

News that the UK gross domestic product had expanded by 6.6% in July failed to eclipse ongoing Brexit worries.

The mood towards the Pound weakened further in the wake of the EU’s call for the UK to remove parts of the Internal Market bill which break the Withdrawal Agreement within three weeks. With the tension between the two sides persisting the risk of a no-deal scenario, and its likely impact on the recovering economy, weighed heavily on GBP exchange rates.

As long as the issue of Brexit continues to dominate headlines, this could keep the Pound trending around its recent multi-month lows.

 

Flat German Inflation Fails to Limit Euro

Confirmation that the German inflation rate flat-lined in August did little to impact EUR exchange rates in the wake of the European Central Bank’s (ECB) policy meeting.

The Euro held onto a stronger footing as policymakers continued to strike a more positive tone on the Eurozone’s economic outlook. With the ECB looking unlikely to target any action on the EUR exchange rate, the single currency continued its bullish run.

However, another weak month of Eurozone industrial production may put a dampener on EUR exchange rates this evening.

 

US Dollar Weakens in Spite of Inflation Uptick

Even though August’s US inflation data bettered forecasts, this failed to shore up USD exchange rates during Friday’s European session.

Given the Federal Reserve’s recent policy guidance, this uptick in inflation is unlikely to prompt any response from policymakers, in spite of core inflation edging towards its target level. With the Fed looking set to sit on its hands in the months ahead, this left the US Dollar to trend lower against many of the majors.

The US Dollar may struggle to find much traction today without a fresh bout of market risk aversion.

 

Weakening Capacity Utilisation Drags on Canadian Dollar

A marked drop in the second quarter capacity utilisation reading cast fresh doubt over the health of the Canadian economy.

This latest evidence of the negative impact of the Covid-19 crisis gave investors little reason to support the Canadian Dollar ahead of the weekend. With the oil market on the back foot, CAD exchange rates were exposed to further selling pressure.

A sense of risk aversion looks set to keep the Canadian Dollar under pressure unless oil prices can show signs of picking back up from their recent lows.

 

Business PMI Miss Unable to Dent New Zealand Dollar

The New Zealand Dollar held onto a positive footing against its rivals while August’s Business PMI weakened sharply on the month.

The reading still represented a positive month of growth for the sector, clocking in at 50.7, limiting worries over the economic outlook. A softer US Dollar helped to boost the higher-yielding New Zealand Dollar, meanwhile.

However, a similarly disappointing showing from the service sector could put NZD exchange rates under some pressure this morning.

Louisa Heath

louisa.heath@torfx.com


Related