Australian Dollar
After firming at the beginning of the week as the People’s Bank of China (PBoC) announced its intention of cutting the reserve requirement ratio, the Australian Dollar put on a more mixed performance on Tuesday.
The ‘Aussie’ was left trending lower against the Pound and US Dollar after the Reserve Bank of Australia’s (RBA) interest rate decision. While policymakers opted to leave interest rates on hold, the implication that the odds of a rate cut taking place this year are rising was enough to put AUD exchange rates under pressure.
RBA Governor Glenn Stevens noted; ‘Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand.’
China’s less-than-impressive manufacturing PMI also undermined demand for the higher-risk asset. The manufacturing gauge dipped from 49.4 to 49.0 – further below the 50 mark separating growth from contraction. Meanwhile, the nation’s services PMI detailed a slowing in the rate of output. Australia’s current account and building approvals reports provided further cause for concern. Although the AiG Performance of Manufacturing Index showed improvement.
Upcoming growth data is likely to have a notable impact on AUD trading. If the rate of expansion is shown to have eased the Australian Dollar could lose more ground against USD and GBP.
Sterling
With no concerning ‘Brexit’ reports to weigh on the Pound, the British asset was able to post modest gains against the majority of its counterparts.
The UK’s Manufacturing PMI may have slipped to its worst level in 34-months, but Sterling’s recent multi-month low against the Australian Dollar paved the way for some consolidation trading and GBP firmed as a result.
The Pound also edged higher against the Euro and US Dollar. The UK’s next ecostat, Markit Construction PMI, is expected to show a slight improvement on the 55.0 rate of output recorded in January. If that proves to be the case it may give Sterling a slight leg up.
Euro
Monday’s disastrous inflation data for the Eurozone kept the Euro on the back foot on Tuesday, with many betting that the European Central Bank (ECB) will have little choice but to expand quantitative easing in the near future.
The day’s ecostats for the currency bloc, employment and manufacturing data, failed to lend the Euro much support despite showing positive revisions to Markit’s PMI gauges for Germany and the Eurozone as a whole as well as an unexpected decline in the Eurozone’s unemployment rate.
The Euro’s general weakness meant that the AUD/EUR exchange rate was able to advance despite the ‘Aussie’ displaying softness elsewhere.
US Dollar
The AUD/USD exchange rate initially pushed back towards the 0.72 level after a high-profile figure from the Federal Reserve supported the argument in favour of leaving borrowing costs on hold.
William Dudley displayed a notable lack of confidence in the US economic outlook and stated that ‘downside risks have crept up’. The negative impact of these remarks on US rate hike expectations weakened demand for the US Dollar and supported higher-risk assets like the Australian Dollar.
Australian and Chinese data later prompted further AUD/USD movement, although the pairing returned to trending around the day’s opening levels despite the US Markit and ISM Manufacturing PMIs improving on forecasts. The ISM Manufacturing index printed at 49.5 in February, a decided improvement on January’s 48.5 but still below the 50 mark separating growth from contraction.
The US ADP Employment report, set for publication in the early hours of Thursday morning, is likely to trigger USD movement given that the data is often perceived as providing an indication of how the more influential Non-Farm Payrolls number will come in.
Canadian Dollar
Rising oil prices and better-than-forecast Canadian growth data bolstered ‘Loonie’ demand as the week progressed. The nation’s economy expanded by 0.2% in December, month-on-month, and 0.5% year-on-year. Annual GDP was expected to print at 0.0%.
The AUD/CAD exchange rate weakened by -0.5% following the report’s release.
New Zealand Dollar
Despite the value of New Zealand’s key commodity, dairy, rising at the latest auction the New Zealand Dollar edged lower against the majority of its currency rivals as risk aversion and Reserve Bank of New Zealand (RBNZ) rate cut bets weighed on ‘Kiwi’ sentiment.
New Zealand’s House Price data may prompt some further NZD fluctuations in the hours ahead.
Data Released
March 2nd 10:00 NZD QV House Prices
March 2nd 11:30 AUD Gross Domestic Product (YoY) (4Q) 2.6%
March 2nd 20:30 GBP Markit/CIPS UK Construction PMI (FEB) 55.5
March 2nd 21:00 EUR Eurozone Producer Price Index (JAN) (YoY) -2.9%
March 2nd 23:00 USD MBA Mortgage Applications