- AUD Cools on Damp Market Sentiment –Holds below 0.74 vs USD
- GBP Weak after Poor Industrial Growth – UK industry returns to recession
- USD Stable despite Safe-Haven Demand– Delayed Fed rate hike bets weigh
- AUD Forecast to Struggle – Political uncertainty reduces appeal
Australian Dollar
Since the Reserve Bank of Australia (RBA) surprised markets by cutting the overnight cash rate to 1.75%, a historical low, the Australian Dollar’s outlook has been largely negative. The ‘Aussie’ (AUD) depreciation hasn’t been as marked as RBA officials had hoped, however, thanks to increased speculation that the Federal Reserve will look to delay a benchmark interest rate hike for a considerable period.
Another major factor limiting the appeal of the South Pacific unit is domestic political uncertainty. Since Prime Minister Malcolm Turnbull called for a snap election when a proposed bill was twice refused by the Senate, traders have been reluctant to invest heavily in the ‘Aussie’. Recent opinion polls have shown that the current government and the Labour party are neck-and-neck. There is likely to be increased AUD volatility as we draw closer to the July 2nd election.
During Wednesday’s European session the Australian Dollar extended losses versus its major peers after Hong Kong’s Hang Seng Index ended the Asian session over 0.9% down. This caused demand for high-yielding assets to retreat. Falling commodity prices also aided the ‘Aussie’ depreciation.
Even a particularly positive domestic report showing that Australia’s Consumer Confidence rose by the most in almost 6-years wasn’t enough to prevent Australian Dollar depreciation. The rise in consumer optimism has been linked to last month’s surprise RBA rate cut.
Looking further ahead, the absence of high-impact domestic data will likely see the Australian Dollar subject to changes in market sentiment. The ‘Aussie’ could be reactionary to US data, however. With that in mind, US Advance Retail Sales, due for publication late on Friday evening, should be of interest to those invested in the Oceanic asset.
Sterling
As we draw ever closer to the June 23rd EU referendum, campaigners for both sides have stepped up operations. However, ‘Brexit’ uncertainty has had less of an impact on Sterling in recent days thanks to increased confidence that the UK will vote to remain in the EU. This is because fewer heavyweight global officials have endorsed the ‘leave’ campaign when compared with the ‘remain’ side.
During Wednesday’s European session the Pound extended losses versus most of its major peers (with the exception of the Australian Dollar) in response to disappointing domestic data. The monthly readings for March’s Industrial and Manufacturing Production both failed to meet with expected growth while the annual readings revealed that British industry returned to recession.
Late on Thursday the Bank of England’s (BoE) ‘Super Thursday’ publications will likely cause significant GBP volatility. Whilst policymakers are not expected to alter the outlook at this time, the accompanying meeting minutes could reveal clues as to the timing of tighter policy. In addition, the BoE will simultaneously publish its quarterly inflation report. Another reduction to inflation forecasts would weigh on demand for the Pound.
Euro
The combination of reduced Fed rate hike bets and easing ‘Brexit’ concerns has seen the Euro make steady gains over the past few days. Wednesday’s European session saw the Euro extend its advantage over major rivals despite a complete absence of domestic data to provoke volatility.
One of the factors supporting the Euro’s appreciation was an announcement from the European Central Bank (ECB) that officials have approached major Eurozone banks to discuss plans to deal with the fallout from a ‘Brexit’. This encouraged traders that the Eurozone will be prepared for any scenario and won’t see long-term issues from the inevitable shock to markets in the event of a ‘Brexit’.
Traders will be looking ahead to Friday’s German and Eurozone Gross Domestic Product reports to gauge Euro volatility. US ecostats are also likely to be impactful.
US Dollar
In recent weeks Federal Reserve officials have been increasingly dovish with regard to monetary policy outlook. Having cited China as posing a significant external risk, some Fed officials also noted recently that the domestic outlook was not supportive of tighter policy. Additionally, Fed Chairwoman Janet Yellen recently highlighted the UK’s EU referendum as another reason to delay a cash rate increase.
Wednesday’s North American session saw the US Dollar trending narrowly versus most of its rivals. This is due to the continued expectation of borrowing costs being kept on hold for now. Even heightened safe-haven demand has done little to prevent range-bound trade.
Traders will be looking ahead to data due out late Friday and early Saturday. Both US Advance Retail Sales and University of Michigan Confidence reports will be highly significant and likely to cause marked US Dollar movement. Positive results would pile pressure on Fed officials to tighten policy.
Canadian Dollar
The wildfire that caused significant damage to Canada’s oil sands region saw crude oil prices rise briefly. This was due to expectations that Canada’s inventories and production capacity was very negatively affected.
Despite rising oil prices, however, the ‘Loonie’ (CAD) failed to make any notable gains as the wildfire is expected to have a very detrimental impact on Canada’s export growth.
With ongoing speculation that the Bank of Canada (BoC) will look to ease monetary policy further before year-end, the outlook for the Canadian asset is negative.
New Zealand Dollar
After it emerged that the ‘Panama Papers’ included many links to New Zealand offshore accounts, and highlighted potential links to the Prime Minister, demand for the ‘Kiwi’ (NZD) cooled significantly. Additional losses can be linked to reduced demand for risk-correlated currencies as Asian stock volatility dampened market sentiment.
Later today, New Zealand’s Performance of Manufacturing Index for April is likely to cause ‘Kiwi’ changes.
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)