Poor Consumer sentiment weakens AUD

Interestingly, although yesterday’s NAB business sentiment index delivered a solid rise, this morning’s release of the Westpac consumer sentiment index was down 1.5%. It must be noted that this is a very volatile index but it stopped the Australian dollar in its tracks. A 2.3% rise in new home sales wasn’t enough to support the AUD and the fact that Australia has cut its GDP estimate for Q3 to a contraction of 3.0% is a worry to AUD traders. Having been as low as 1.8440 yesterday, the GBPAUD rate bounced to 1.8560 overnight and is only slightly below that level this morning.

Across the Tasman Sea, in contrast to yesterday’s Australian data, New Zealand business confidence suffered in October. The ANZ survey produced a minus 8.6 reading, the fifth negative reading in a row. The GBPNZD rate is a cent higher this morning at 1.9630.

GBP boosted by 6.9% GDP growth

Part of that rise is this morning’s UK GDP data, which showed the economy grew a better than forecast 6.9% in the last year. That is slightly lower than last month’s 7.5% but still a healthy growth rate. This morning’s other data releases were mostly very upbeat. Industrial production 3.7% on the year, manufacturing production up 4.1%. The fly in the ointment is a trade deficit which rose to £14.93 billion. Nonetheless, sterling has posted gains in most currency pairs. GBPUSD is Up above 1.36 again, having been below that level from most of yesterday, and GBPEUR is still pushing the upper end of its range but not quite breaking through 1.18.

This morning German inflation data was in line with expectation but we will also see eurozone industrial production data later this morning handsome inflation data from other EU states. The dark cloud on all horizons is the potential for tighter monetary policy from the various central banks, the ECB is in the spotlight as well.

USD traders pause for US inflation data and Fed minutes

The US dollar has taken half a step backward today ahead of this afternoon’s American consumer price inflation data. The US Federal Reserve is watching this information as it prepares to tighten the money supply by tapering the level of bond purchases and lining up interest rate hikes. A general market consensus is that those interest rate hikes won’t happen until the latter part of 2022. Another factor that affects the US dollar is the price of energy and other commodity products. We will see a monthly report from OPEC this afternoon which will have an impact on the value of crude oil. It’s worth keeping an eye on that report for clues as to the US dollar’s direction in the short term.

The UK trading day ends with the release of the minutes from the last Federal Reserve meeting. Every line will be examined for clues on the pace and timing of US monetary policy tightening. So we can expect USD volatility overnight.

The Australian Dollar will be active in the early hours of Thursday when a consumer sentiment index is released ahead of Australia’s employment data. This plus China’s inflation data will make the overnight markets lively.

Have a great Wednesday and just remember, always take everything life throws at you with a pinch of salt….. and ideally, a slice of lime and a measure of tequila. I find it keeps things in perspective.

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