Australian Dollar
At the close of last week the Australian Dollar fluctuated as markets reacted to the Bank of Japan’s (BoJ) decision to cut its interest rate into negative territory. The BoJ slashed the rate to -0.1% in its latest effort to reinvigorate the domestic economy and the move sent the Yen reeling. With the safe-haven Yen on the back foot and the prospect of additional stimulus emboldening trade, higher-risk currencies like the Australian Dollar and New Zealand Dollar initially strengthened.
However, the ‘Aussie’ slipped by more than 0.5% against the Pound, Euro and US Dollar on Monday as both Australian and Chinese manufacturing reports provided cause for concern. While the Australian data was hardly uplifting, the deepening rate of contraction in China’s manufacturing sector was the main cause of AUD losses.
With the Reserve Bank of Australia (RBA) due to deliver its interest rate decision in the hours ahead, we can expect further ‘Aussie’ volatility. Before Christmas the RBA was decidedly relaxed on the subject of reviewing fiscal policy. If, however, the marked volatility witnessed since the outset of the New Year prompts policymakers to be more dovish, AUD could fall against rivals like GBP, EUR and USD.
Sterling
Although the Pound’s appeal was muted by a frustrating lack of progress in the UK’s relationship negotiations with the EU, the Pound was able to advance on a broadly softening ‘Aussie’ during the first European trading session of the week.
AUD/GBP dipped to a low of 0.4935 as investors exhibited caution in the wake of China’s dud manufacturing report. Sterling sentiment was also sweetened by the UK’s own manufacturing report. The Markit index unexpectedly climbed from a positively revised 52.1 to 52.9 in January rather than slipping to 51.6. The result was a three-month high and helped the Pound consolidate gains against the Australian Dollar.
Over the next couple of days UK news with the potential to inspire AUD/GBP exchange rate movement includes the nation’s Construction and Services PMIs and the Bank of England’s ‘Super Thursday’ of announcements. Signs of dovishness from the BoE or a negatively adjusted domestic inflation report could see Sterling tumble.
Euro
A mixed bag of manufacturing reports for the Eurozone wasn’t enough to prevent the Euro’s uptrend against the Australian Dollar on Monday.
The rate of manufacturing output in the Eurozone as a whole slowed, adding to the argument in favour of the European Central Bank unleashing additional stimulus measures in the near future. The Euro proved resilient however.
The AUD/EUR exchange rate approached the close of the European session trending just below 0.65 and the pairing could extend losses if upcoming ecostats for the currency bloc (including the region’s producer price report and unemployment figures for both Germany and the Eurozone as a whole) print well.
US Dollar
With investors spooked as a result of the latest in a run of bad economic news for China, the safe-haven US Dollar was in high demand and the currency advanced on peers like the Australian and New Zealand Dollars at the start of the week.
US Personal Spending/Personal Consumption Expenditure data may have been mixed, but the ‘Greenback’ still retained the upper hand.
However, USD may experience a reversal of fortunes in the days ahead if the stream of influential US ecostats scheduled for publication (including Friday’s US Non-Farm Payrolls report) increase the odds of the Federal Reserve scaling back its intentions for further interest rate adjustments in 2016.
Canadian Dollar
The AUD/CAD exchange rate was able to firm at the beginning of the week as the price of crude oil (Canada’s most lucrative export) plummeted following the publication of disappointing manufacturing data from China.
Although Canada’s RBC Manufacturing PMI did show improvement in January by climbing to 49.3, it still remained below the 50 mark separating growth from contraction and so failed to lend the ‘Loonie’ much support. Other Canadian data to be aware of this week includes the nation’s employment report, due for release on Friday.
New Zealand Dollar
The Australian Dollar was able to eke out a modest gain against its New Zealand counterpart ahead of the RBA interest rate decision. If the latest dairy price auction indicates that the value of New Zealand’s key commodity remains strained, the ‘Kiwi’ may slide lower still.
Additionally, New Zealand’s upcoming employment report is expected to show an increase in the level of joblessness. If that proves to be the case, AUD/NZD is likely to climb.
Data Released
Feb 2nd 14:30 AUD RBA Rate DecisionFeb 2nd 20:30 UK Markit Construction PMI 57.5
Feb 2nd 21:00 EUR Eurozone Unemployment Rate 10.5%
Feb 3rd 08:45 NZD Unemployment Rate 6.1%
Feb 3rd 08:45 NZD Employment Change