RBNZ Rate Cut Inadvertently Boosts Risk Appetite

Published: 11 Aug at 1 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, France, Ireland, Italy,

Pound Sterling
A worse-than-expected result from the latest RICS House Price Balance has added to the UK’s economic woes. The index dropped one point further than expected to 5%, thanks to a retrospective downgrade in the previous month’s reading. Credit rating agency Moody’s has further lowered the outlook for the housing market with a new report suggesting that the mortgage market could weaken. As if that wasn’t enough poor economic news, the latest Thomson Reuters/Ipsos Primary Consumer Sentiment Index (PCSI) has revealed that consumer confidence is at a two-year low. Unsurprisingly, Pound Sterling isn’t faring well today.

Euro
The Euro is weak today thanks to finalised consumer price growth figures reaffirming the huge challenge faced by the European Central Bank (ECB). Both harmonised and non-harmonised inflation in France declined -0.4% on the month in July, while in Italy the Harmonised inflation rate dropped from previous growth of 0.2% to -1.9% on the month. Annualised inflation figures remained at -0.2%, despite forecasts of an upwards revision to -0.1%. Irish inflation also declined on the month in both forms, despite strong growth previously. With no Eurozone data on the calendar for the rest of the day, the Euro may remain soft for the rest of the session.

US Dollar
An initial bull charge by the ‘Kiwi’ yesterday night pushed the US Dollar down, but the resulting sell-off of the high-risk asset paved the way for a strong USD rebound. As a result the US Dollar is now registering strong gains against the majority of its peers. The number of initial and continuing jobless claims figures are both expected to have improved during the previous week. Initial jobless claims are predicted to have fallen from 269k to 265k, while continuing claims are anticipated to have fallen from 2138k to 2130k.

Australian Dollar
The Australian Dollar is benefitting from the current surge in risk appetite, advancing versus a number of its peers. AUD/GBP is at a two-and-three-quarter-year high, while AUD/USD has strengthened to its highest level in over four months. Consumer inflation expectations have actually weakened, edging down to 3.5% to 3.7%, but overall investors are enjoying the strong Australian Dollar.

New Zealand Dollar
An interest rate cut has failed to weaken the ‘Kiwi’ as hoped, with markets cheered by the fact that the Reserve Bank of New Zealand (RBNZ) didn’t ease policy further. The adjustments were at the smallest end of the range expected, so the cut had the adverse effect of sending the New Zealand Dollar charging. The ‘Kiwi’ is weakening now thanks to trade profit-taking following speculative gains, but overall NZD remains inherently strong and the RBNZ’s headache commensurately so.

Canadian Dollar
Crude oil may be weakening back towards US$40 per barrel, erasing seven days’ worth of gains, but the Canadian Dollar is nonetheless strengthening. News that the government is intending to auction a seven-year high amount of bonds in order to ramp up fiscal stimulus measures is keeping the ‘Loonie’ on the uptrend. CA$15 billion of bonds will be up for auction over the course of the month. The first of these have already been sold at yields -40 basis points below their five-year average, making it the perfect time for Canada to borrow in order to fuel infrastructure spending.

As of Thursday, 11th August 2016, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1632, GBP USD exchange rate was 1.2958, GBP AUD exchange rate was 1.6827, GBP NZD exchange rate was 1.7966, and GBP CAD exchange rate was 1.682.

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