Australian Dollar
The Australian Dollar crashed against its peers yesterday after a disastrous result from the latest consumer price index. Year-on-year (YoY) inflation slowed to 1.3% from 1.7%, at which level it was expected to hold steady, while quarter-on-quarter (QoQ) prices dropped -0.2%, instead of seeing a slowdown in growth from 0.4% to 0.2%. The fall was the first time in seven years that Australia has experienced deflation and the largest single drop during that period.
As a result, investors deserted the ‘Aussie’, causing it to make losses of around -2% against its most commonly traded peers. The latest developments have strengthened belief that the Reserve Bank of Australia (RBA) will be forced to cut interest rates at next week’s policy meeting.
Today’s interest rate decision and policy statement from the US Federal Reserve could cause significant ‘Aussie’ movement. If the Fed remains dovish, the resulting US Dollar weakness could help the Australian Dollar to recover some of the ground lost yesterday.
Sterling
AUD/GBP tumbled on the back of the inflation data yesterday. Correctional trading on the back of dwindling ‘Brexit’ odds kept the Pound Sterling on strong form during the start of yesterday’s trading. The latest UK Gross Domestic Product figures for the first three months of 2016 dampened investor appetite, however.
Sentiment was mixed following the data, which showed the expected slowdown in quarterly growth from 0.6% to 0.4%, but revealed that annualised growth had held steady at 2.1%, rather than slipping to 2% as forecast. Eventually the Pound’s recovery ran out of momentum, with Sterling making small losses against most of the major currencies, although it retained its bullish lead against the stricken ‘Aussie’.
There is no UK data due out today.
Euro
The Euro was in a strong position overall yesterday, making bullish gains against the Australian Dollar and the New Zealand Dollar. A surprise uptick in German consumer confidence caused the Euro to appreciate, with the GfK survey index increasing from 9.4 to 9.7, despite no change having been predicted. The survey showed that propensity to buy and income expectations, both of which were already scoring highly, improved again.
The large jump in the propensity to buy index, which climbed 5.4 points to hit its highest level in nine months, was a particularly welcome sign for economists. Rising purchasing intentions suggests that the European Central Bank’s (ECB) measures to boost consumer spending could be working and point to rising inflation in the future.
More German data is released today, with the important unemployment change, unemployment rate and consumer price index figures all likely to create volatile Euro movement.
US Dollar
The idea that the US economy remains resilient in the face of global economic headwinds was eroded further yesterday by yet more disappointing data. Consumer confidence dropped much further-than-expected, sliding from 96.2 to 94.2. Mortgage applications declined considerably, falling -4.1% after previously growing by 1.3%.
The US Dollar managed to make some strong gains yesterday, however, helped by low risk appetite ahead of the Federal Open Market Committee’s (FOMC) interest rate decision today. Investors aren’t expecting a change to monetary policy from the Fed, but the accompanying press conference could give some hints as to when markets can expect action from the FOMC.
Canadian Dollar
Rising crude oil prices boosted the Canadian Dollar after reaching a 6-month high. WTI Crude gained 2% to hit US$44.94 per barrel yesterday, edging towards the key US$50 level, above which the top oil producers will be able to afford to operate without drastically cutting spending. The Canadian Dollar has benefited from the recent weakness in the US Dollar, with the CAD/USD exchange rate hitting a ten-month high, while thanks to the latest Australian Dollar drop, CAD/AUD climbed to a five-month high.
There is no economic data due for Canada today.
New Zealand Dollar
Disappointing trade data undermined the New Zealand Dollar yesterday, pushing it deep into negative territory. The only gains for the ‘Kiwi’ were against the Australian Dollar, where it still managed to make a bullish advance.
The trade figures showed that New Zealand’s trade surplus had shrunk significantly in March, falling from NZ$367 million to NZ$117 million. This meant that the year-to-date trade deficit widened from -NZ$3294 million to -NZ$3838 million; the highest level in seven years.
It’s likely to be a turbulent day for the New Zealand Dollar today. Interest rate decisions by the US Federal Open Market Committee (FOMC) and the Bank of Japan (BOJ) could boost or diminish demand for safe-haven assets, inversely affecting the popularity of high-risk currencies like the ‘Kiwi’. However, the outcome of the Reserve Bank of New Zealand’s (RBNZ) interest rate decision this morning will also have a strong impact on the New Zealand Dollar.
Data Released
28th April 04.00 USD Federal Open Market Committee Rate Decision (APR 27) 0.50%
28th April 07.00 NZD Reserve Bank of New Zealand Rate Decision (APR 28) 2.25%
28th April 17.55 EUR German Unemployment Change (APR) 0k
28th April 17.55 EUR German Unemployment Rate s.a. (APR) 6.2%
28th April 22.00 EUR German Consumer Price Index (YoY) (APR P) 0.1%
28th April 22.30 USD Gross Domestic Product (Annualized) (1Q A) 0.6%
28th April 22.30 USD Personal Consumption (1Q A) 1.7%