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February 2016

Daily Currency Insight

Published: Tuesday 16 February 2016

  • RBA minutes boost the Aussie
  • RBNZ inflation expectations at 12 year low
  • UK inflation data key release today 
Markets were fairly range bound yesterday due to the Presidents' Day bank holiday in the United States. There was very little of note released however Mario Draghi , speaking at the Economic and Monetary Affairs committee, was a little dovish noting that in light of the recent financial turmoil the ECB stands ready to act if this manifests itself into downward risks to prices stability. The Euro weakened a touch as traders have been burnt by the ECB in the recent past, this was short lived and the single currency is still trading within its current trading range.
Overnight the Reserve Bank of Australia released the minutes from their 2nd February meeting. The Australian Dollar gained some strength as the RBA stated that the pace of economic growth should pick up gradually over the next few years without posing too many issues on inflation. There was nothing in the minutes to suggest that the easing bias has shifted so perhaps the move can be attributed to traders squaring up their books ahead of Thursday’s employment data.
Over in New Zealand, Retail sales rose by only 1.2% in Q4 of 2015 missing expectations of a 1.4% increase and also lower than the downwardly revised 1.5% in the third quarter. Inflation expectations have also fallen to 1.6% in Q1 (a 22 year low) which could put more pressure on the Reserve Bank of New Zealand to cut rates. Admittedly there doesn't seem to be much appetite from the RBNZ to move in the near term but if the data continues to disappoint the market will increase the pressure for policy makers to act. The Kiwi is under pressure and set to fall further in the short term.
Earlier today it was reported that UK inflation rose in line with estimates to hit its highest level in almost a year. Core inflation however slowed more than expected. Weak inflation is the main reason why the Bank of England has been able to leave interest rates at emergency levels for so long and there is nothing in the latest figures to suggest that this will change in the near future.
FX Research by Ricky Nelson

Daily Currency Analysis with Alastair Sweetman

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