Daily Currency Update
Sterling romped higher across the board on Tuesday as investors responded enthusiastically to a stronger-than-anticipated UK Consumer Price Index. As both the core and non-core measures of inflation rose, the odds of a Q1 2016 rate adjustment from the Bank of England (BoE) likewise climbed and the Pound registered notable gains against the Euro, US Dollar, Australian Dollar and New Zealand Dollar. The British currency was able to consolidate gains against several of its peers after outgoing BoE policymaker David Miles asserted that UK borrowing costs need to be revised ‘pretty soon’. UK data is lacking today but tomorrow’s domestic retail sales figures are likely to be a cause of further Pound movement.
A dearth of ecostats for the Eurozone left the Euro trending in a fairly narrow range against most of its rivals yesterday, with any remarkable shifts being the result of developments elsewhere. However, with German MPs set to vote on the Greek bailout today, some common currency volatility might be occasioned. While the aid measures are expected to be passed, it is likely that Chancellor Angela Merkel will come up against fierce opposition from members of her own party. The Eurozone’s Current Account and Construction Output reports will also be of interest.
A combination of better-than-forecast UK news and worse-than-anticipated US housing data saw the Pound Sterling to US Dollar exchange rate achieve a 50-day high on Tuesday. Both US Housing Starts and Building Permits figures came in below expected levels, but ‘Greenback’ declines were limited ahead of the release of today’s domestic inflation report and Federal Open Market Committee (FOMC) policy meeting minutes. Any hawkish signals which keep hopes of a September rate adjustment alive have the potential to send the US Dollar trending higher.
Fairly encouraging minutes from the last Reserve Bank of Australia (RBA) policy meeting initially gave the ‘Aussie’ a modest boost yesterday, but movement in the Chinese stock market and a solid UK inflation report later drove the South Pacific currency lower against the Pound. During the Australasian session the Westpac Leading Index came in at 0.0% in July month-on-month, unchanged from June. Australia’s Skilled Vacancies report, meanwhile, showed a 0.1% increase in July following a revised -0.3% decline in June.
New Zealand Dollar
As yesterday’s Fonterra dairy auction showed a positive revision to the company’s payout forecast, the New Zealand Dollar managed to claw back some of its earlier two-cent loss against the Pound. While today’s US news is likely to have an impact on demand for the ‘Kiwi’, investors will also be looking ahead to upcoming domestic releases, including New Zealand’s Job Advertisements and Consumer Confidence figures.
The Canadian Dollar came within touching distance of a fresh six-and-a-half year low against the Pound on Tuesday thanks to the UK’s unexpectedly upbeat inflation report, but profit taking stances saw the ‘Loonie’ regain a firmer footing during the afternoon. In the absence of any Canadian releases the US CPI and FOMC meeting minutes will be the driving force behind Canadian Dollar movement in the hours ahead.
South African Rand
The Rand’s bearish trend continued on Wednesday as the prospect of today’s US inflation report bolstering rate hike expectations kept demand for the emerging-market asset limited. Today’s South African inflation and retail sales figures might inspire additional Rand fluctuations during the local session.