Australian Dollar
The Australian Dollar rebounded yesterday after Monday’s weakness, buoyed by the fact that Chinese consumer prices continued to grow at a steady level. Elsewhere, other Chinese developments weakened some of the majors, yet the ‘Aussie’ registered bullish gains. This can partly be linked to speculation that the Reserve Bank of Australia (RBA) may rethink its inflation target once Philip Lowe becomes Governor in September. Suggestions that the central bank may accept that lower inflation is part of the ‘new world order’, combined with claims from a former RBA governor that the bank shouldn’t cut further to attempt to boost inflation, softened fears of further easing.
Today’s Westpac Consumer Confidence Index could have a notable impact on the Australian Dollar. With inflation having fallen recently, investors will be hoping for an uptick in sentiment as this is seen as a good indicator of building inflationary pressures.
Sterling
AUD/GBP remained firm yesterday after it was revealed that the UK’s first quarter trade deficit was at its widest since 2008. On the month trade deficits shrank more-than-expected, which helped Pound Sterling make small advances on many of the other majors. Meanwhile, ‘Brexit’ fears were weakened after a leading UK economist warned that a ‘Brexit’ would not significantly cut immigration and that the long-term consequences of a 50% reduction in immigration would be a 2p increase in income tax.
Today’s UK industrial and manufacturing production figures will be closely watched. All but the annual manufacturing production figure are expected to improve, but after last week’s disastrous PMIs, there is a good chance these figures could severely disappoint their forecasts.
Euro
Negative Eurozone data overshadowed more positive releases yesterday. The Euro sank into negative territory, pushed lower by continued fears over Greek debt. Year-on-year (YoY) industrial production in Germany slowed much further-than-expected, disappointing forecasts of 1.1% growth to increase just 0.3%. While the German trade balance figures were positive from an economic point of view, from a political one they could be a source of friction. In the ongoing and increasingly bitter row between the European Central Bank (ECB) and Germany, Mario Draghi has highlighted Germany’s current account surplus as one of the reasons the rest of the Eurozone needs negative rates. The fact that it increased more-than €9 billion is unlikely to ease tensions between two major powers in the Eurozone.
There is no Eurozone data due out today, so market sentiment will be the primary driver of Euro movement.
US Dollar
News from China worried investors yesterday and caused the US Dollar to soften against most of the majors. While the data printed as expected, comments in a communist party newspaper ostensibly from the government suggested a policy shift. The People’s Daily regularly publishes interviews on fiscal policy conducted with an ‘authoritative source’. Recent editions have seen this unnamed person praising China’s borrowing as a way of boosting the economy, but the latest article has them referring to the ‘original sin’ of excessive debt for China. This sparked concerns that government fiscal policy could be about to change, invoking memories of the stock market volatility caused by China at the beginning of the year. Such developments could spell doom for any hopes of a Federal Reserve rate hike, causing the US Dollar to fall.
The bulk of today’s US data has already been released, with only tonight’s MBA mortgage applications figure left to come.
Canadian Dollar
Appetite for the Canadian Dollar remained weak yesterday after economists warned that the fires in Alberta would have a national impact. Many have already speculated that GDP could take a significant hit, while the Government could struggle to meet its deficit targets if it continues to miss out on oil royalties. As a result, the ‘Loonie’ tumbled verses the Australian Dollar.
The only Canadian event of note today will be a public appearance by Bank of Canada (BOC) Senior Deputy Governor, Carolyn Wilkins. However, it is likely that the reaction to the wildfire in Alberta will be the biggest factor in determining Canadian Dollar movement.
New Zealand Dollar
Sliding commodity prices weakened the New Zealand Dollar yesterday. Spot gold, silver and platinum also ticked marginally lower, while tin, zinc, aluminium and copper saw much more significant drops. Iron ore dropped below US$55 per tonne, causing economists to claim that the recent commodity boom was over. Chinese speculators had been buying into the market, pushing prices above US$70 per tonne, but now that Beijing is cracking down on such activity, prices are dropping once more.
No data releases are due from New Zealand today.
Data Released
May 11th 10.30 AUD Westpac Consumer Confidence Index (MAY)
May 11th 11.30 AUD Home Loans (MAR) -1.5%
May 11th 11.30 AUD Investment Lending (MAR)
May 11th 18.30 GBP Industrial Production (YoY) (MAR) -0.4%
May 11th 18.30 GBP Manufacturing Production (YoY) (MAR) -1.9%
May 11th 21.00 USD MBA Mortgage Applications (MAY 6)