Australian Dollar
Appetite for the Australian Dollar remained weak on Friday as Wednesday’s inflation shock continued cooling sentiment. The latest domestic data was unsupportive as well, with private sector credit growth slowing from 0.6% to 0.4% on the month and from 6.6% to 6.4% on the year. Producer price growth slowed on the year and declined on the previous quarter, reflecting recent low inflationary pressures.
Meanwhile, an esteemed economist warned that the Reserve Bank of Australia (RBA) should save some of its ‘policy ammunition’, rather than cutting rates at the next meeting. Saul Eslake believes the RBA will need to respond to a potential downgrade in Australia’s AAA credit rating – which some ratings agencies have suggested could happen – by delivering a rate cut.
The RBA meets to make its next interest rate decision on Tuesday. Although the forecast is for no change, some have speculated that the recent poor inflation data could justify loosening monetary policy further.
Sterling
Even the release of mixed UK data failed to allow the Australian Dollar to make gains on Pound Sterling on Friday. Consumer confidence was shown to have weakened further-than-expected, sliding from 0 to -3, while the Lloyds Business Barometer dropped from 43 to 38. Net Consumer Credit posted a strong rise in March, but mortgage approvals fell.
Also weakening appetite for the Pound was the results from YouGov’s latest poll which showed that the ‘Leave’ campaign had taken the lead in the ‘Brexit’ referendum, with 42% of support compared to 41% for the ‘Remain’ side.
The first release on the UK’s sparse data calendar this week is the Markit Manufacturing PMI.
Euro
Despite data showing a slowdown in inflation, the Euro was trending bullishly on Friday. Consumer prices may have fallen -0.2%, with the core index slowing to a below-forecast 0.8%, but unemployment unexpectedly fell and seasonally-adjusted Gross Domestic Product printed 0.2% above forecast at 0.6%.
This means that the Eurozone economy has finally recovered to the levels experienced before the financial crisis. It has taken considerably longer than other leading economies – the US reached pre-crisis levels in 2011 and the UK in 2013 – but the Eurozone recovery has finally made strong progress, sending the Euro into a bullish charge.
The European Commission releases its economic forecasts on Tuesday, which could provoke serious market volatility for the Euro.
US Dollar
The US Dollar slumped into negative territory on Friday as the latest releases disappointed. There were no surprises on the scale of Thursday’s GDP results, but personal spending growth slowed and the Chicago Purchasing Managers’ Index slipped to almost stagnation levels.
On Tuesday, the US ISM Manufacturing index is likely to drive US Dollar exchange rate movement. A lower reading will push the ‘Greenback’ down even further. While a higher reading may boost sentiment, the US Dollar is unlikely to experience a bullish rise; it will take more than a couple of positive data releases to calm current fears of a slowing economy.
Canadian Dollar
The Canadian Dollar remained surprisingly strong on Friday, even though the latest GDP figures showed that the economy shrank by -0.1% in February. Although the data revealed the first negative growth in Canada for five months, experts had predicted a larger contraction. The overall Q1 picture still looks to be strong, however, after January’s leap to 0.6% growth, which should help to counterbalance February’s decline. With expectations still for respectable growth in Q1, the ‘Loonie’ advanced, helped by Brent Crude oil reaching towards US$48.30 per barrel.
The Canadian Manufacturing PMI could move the Canadian Dollar on Monday.
New Zealand Dollar
Mixed domestic data inspired a similar performance in the New Zealand Dollar on Friday. Building permits dropped -9.8% on the month in March, although the ANZ Activity Outlook rose from 29.4 to 32.1 and the NBNZ Business Confidence index jumped from 3.2 to 6.2. However, a poll of 12 economists showed that 11 were predicting the Reserve Bank of New Zealand (RBNZ) would have to cut interest rates to a new record low in the near future.
New Zealand Dollar movement will largely come from the results of the GlobalDairyTrade auction on Tuesday. A rise in the price of the dairy index will be supportive of the ‘Kiwi’ and could cause bullish gains.
Data Released
May 2nd 23.30 CAD RBC Canadian Manufacturing PMI (APR)
May 3rd EUR European Commission Economic Forecasts
May 3rd 00.00 USD ISM Manufacturing (APR)
May 3rd NZD Dairy Auction Avg. Winning Price MT (MAY 3)
May 3rd 14.30 AUD Reserve Bank of Australia Rate Decision (MAY 3) 2.00%
May 3rd 18.30 GBP Markit UK PMI Manufacturing s.a. (APR)