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Australian Dollar gains ground

17 August 2016 by News Desk

Australian Dollar exchange rate gained around a cent and a half in value before falling slightly on Wednesday morning.

Australian DollarAustralian Dollar bulls had been buying into the currency consistently over the last couple of weeks due to low interest rate prospects from major markets, according to currency specialists TorFX

The high yield potential of the Australian Dollar meant it was very appealing compared to currencies from nations with ultra low interest rates.

However, the Australian Dollar finally took a break from its rally on Tuesday as investors returned to some of the more sold-off currencies (like the US Dollar) and as risk-on movements cooled. AUD is in a strong position to advance against Sterling in the short to long term due to its high yield potential and the solid performance of Australian commodities in recent months.

New Zealand Dollar (NZD) – The Pound was able to advance against the New Zealand Dollar on Tuesday afternoon, even despite optimistic commodity news from New Zealand.

Prices of dairy, New Zealand’s most lucrative commodity, have been struggling for a long time. However, yesterday’s Global Dairy Trade (GDT) auction finished with an impressive 12.7% increase in dairy prices. This was the biggest single-session gain since 2015, and if prices continue to recover it could cause the Reserve Bank of New Zealand (RBNZ) to hesitate on making further interest rate cuts.

The Pound to New Zealand Dollar exchange rate fluctuated throughout Tuesday, but struggled to maintain its highest levels on Wednesday as NZD sentiment remained sturdy.

Australian Dollar gains ground

Pound Sterling (GBP) – The Pound was finally able to pause its downtrend on Tuesday as a higher-than-forecast Consumer Price Index (CPI) for July allowed Sterling to advance. Yearly inflation rose to 0.6% – its highest level in 20 months and beating estimates of 0.5%.

While the Office for National Statistics (ONS) stated that there were not yet any obvious Brexit effects on inflation, another dataset of producer prices had soared to its highest levels in over two years.

This was due to the low value of the Pound making it increasingly expensive for importers, and more expensive production could lead to more expensive consumer prices in the future. Some analysts have predicted that inflation could soar beyond 2.0% by the end of 2017, but fast inflation could be an obstacle to the Bank of England (BoE) as well as consumers.

Wednesday’s jobless claims report was surprisingly optimistic, with 8.6k less jobless claims made in July. This figure could boost Sterling slightly throughout the day as markets await Thursday’s key session. Sterling’s advances are likely to be limited however, as Thursday’s July retail sales figure could show the more immediate effects of the Brexit vote.

US Dollar (USD) – The Pound to US Dollar exchange rate gained around a cent and a half on Tuesday despite their being a considerable amount of pressure on Sterling. Investors purchased Sterling from its three-decade-lows and sold off the US Dollar due to disappointingly low US CPI results, allowing GBP/USD to easily advance.

US Consumer Price Index results for July were published during Tuesday’s American session, and revealed that US inflation had slowed from 1.0% to 0.8% on the year as of July despite an expected slowing to 0.9%. This likely weighed on Federal Reserve rate hike bets, with the grand majority of analysts now believing that a September rate hike won’t happen.

The US Dollar’s selloff may have been muted slightly by an optimistic industrial production figure of 0.7% and comments from Fed official William Dudley claiming that the Fed could still hike rates in September.

Bets of a 2016 rate hike fell as low as 42% as of this week. The Fed’s July meeting minutes will be published this evening, and have the potential to cause the US Dollar to rise if the tone of the minutes is considerably hawkish. Investors will also look ahead to next week’s Jackson Hole meeting, at which Fed Chair Janet Yellen will be speaking

Euro (EUR) – The Pound to Euro exchange rate briefly reached a new three-year-low on Tuesday morning before recovering from its worst levels and trending closer to the week’s opening levels thanks to Britain’s unexpectedly high inflation results.

The Euro remained sturdy throughout much of the day though, as the latest economic sentiment survey from ZEW revealed that sentiment in the bloc had recovered from July’s contraction. Overall Eurozone sentiment improved from -14.7 to 4.6, while German sentiment reached 0.5. If the economic situation throughout the Eurozone remains solid, it could deter the European Central Bank (ECB) from introducing further monetary easing measures, which would in turn make the Euro more appealing.

The ECB’s next movements are also likely to be influenced by Thursday’s Eurozone inflation results. A drop in inflation would increase rate cut bets, and send the Euro lower.

Canadian Dollar (CAD) – The Pound to Canadian Dollar exchange rate gained around a cent during Tuesday’s session, reversing some of its recent losses. The move was influenced by a market trend of buying the Pound from its cheapest levels following Tuesday’s decent inflation results, which allowed Sterling to overpower even a sturdy ‘Loonie’.

Prices of oil, despite recent lows, improved to a new monthly high on Tuesday as markets continued to speculate on the possibility of an oil production freeze. This would normally result in sturdiness in the oil-correlated Canadian Dollar, but Sterling powered ahead regardless.

Unfortunately, the ‘Loonie’ may not be able to make use of that oil price increase going forward, as prices of the commodity dropped overnight due to fading hopes of an oil production freeze.

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