Although the British Retail Consortium (BRC) like-for-like sales data proved better than forecast in December this failed to boost the Pound on Tuesday morning. Confidence in Sterling remained rather limited in the wake of Theresa May’s anticlimactic cabinet reshuffle, which failed to deliver any particular shake up. With the Prime Minister’s position still looking rather fragile GBP exchange rates remained distinctly muted today.
While the Eurozone unemployment rate fell to 8.7% in November, as forecast, the mood towards the Euro remained bearish. Investors continued to ignore the positive nature of the latest domestic data, even as the German trade surplus widened further from 18.9 billion to 23.7 billion in November. Demand for the single currency is still limited by doubts over the likelihood of the European Central Bank (ECB) returning to a more hawkish monetary bias in the near future.
December’s NFIB small business optimism index surprised to the downside, sliding from 107.5 to 104.9 as confidence within the US economy faltered. Even so, the mood towards the US Dollar remained generally positive thanks to the more hawkish nature of recent Federal Reserve policymaker comments. With members of the Fed pointing towards more interest rate hikes over the course of the year USD exchange rates continued to regain ground.
An unexpected increase in building approvals on the month encouraged the Australian Dollar to strengthen somewhat this morning. With the Australian housing sector showing some renewed signs of growth the downside potential of AUD exchange rates was limited, even though concerns remain over the wider domestic outlook. Even so, this increased demand for the ‘Aussie’ remains fragile in nature, given the generally muted nature of market risk appetite.
New Zealand Dollar
NZD exchange rates continued to reverse some of its recent run of weakness, even in the absence of any fresh domestic data. This trend was largely the result of investors buying back into the weakened New Zealand Dollar, acting as more of a correction than a real change in direction for the antipodean currency. As a result, the ‘Kiwi’ may struggle to maintain this upside momentum for much longer.
Oil extended its bullish run on Tuesday, touching its highest level since May 2015 as Brent crude edged above US$68 per barrel. The commodity’s strong performance offered some support to the Canadian Dollar, boosting confidence in the economic outlook. With the odds of an imminent Bank of Canada (BOC) interest rate hike running high CAD exchange rates have gained additional traction.