Australian Dollar
Market sentiment dampened considerably on Wednesday after Hong Kong’s Hang Seng Index ended the Asian session over 0.9% down. Once again, equity losses in Hong Kong reduced the appeal of high-yielding assets yesterday after the Hang Seng Index ended the session 0.7% down. This saw reduced demand for the Australian Dollar. Political uncertainty is also having a detrimental impact on demand for AUD after Prime Minister Malcom Turnbull called a snap election.
Additional ‘Aussie’ losses can be linked to forecasts from JP Morgan that the Reserve Bank of Australia (RBA) will continue to cut the overnight cash rate to 1% or less due to a lack of inflationary pressures. Yesterday’s data also showed that Consumer Inflation Expectation in May dropped from the previous figure of 3.6% to 3.2%.
With a complete absence of domestic data due for release today, market sentiment is likely to continue to dictate AUD movement. Later in the evening the ‘Aussie’ could see marked price swings in response to US Advance Retail Sales data. A poor result would see AUD strengthen as bets mount regarding long-term delays to a Federal Reserve cash rate increase.
Sterling
Yesterday the British Pound strengthened versus most of its currency rivals after the Bank of England (BoE) held the benchmark interest rate. Policymakers voted unanimously which surprised those analysts expecting one or more to vote to cut the cash rate. The central bank did, however, reduce forecasts for 2016 growth to 2%, citing EU referendum uncertainty as damaging to output.
In the accompanying press conference, Bank of England (BoE) Governor Mark Carney issued his severest warnings yet with regards to the potential economic fallout of a ‘Brexit’. Stating that economic growth is likely to slow, inflation rise and joblessness increase, Carney’s words caused the British Pound to rally versus its peers. Sterling gained as investors hoped Carney’s commentary would be enough to sway victory for the ‘Remain’ camp.
British ecostats are unlikely to be hugely impactful today, so Sterling movement will likely be dictated by any EU referendum developments.
Euro
In response to less-than-ideal domestic data, the Euro softened versus most of its major peers yesterday. Of particular disappointment was Eurozone Industrial Production which failed to meet with expectations on both a monthly and annual basis. Even comparative US Dollar weakness wasn’t enough to provoke appreciation.
Today is likely to see significant Euro volatility in response to high-impact domestic ecostats. Both German and Eurozone Gross Domestic Product reports will be closely watched. If growth slows beyond expectations it will amplify speculation that the European Central Bank (ECB) will look to ease policy further within the next few meetings.
US Dollar
The US Dollar depreciated yesterday after domestic labour market data failed to meet with expectations. Of particular disappointment was initial Jobless Claims which rose from 274,000 to 294,000 in the week ending May 7th, well above the market consensus of 270,000.
Over the past few days the US Dollar has generally weakened thanks to increased bets regarding a delay to the next Federal Reserve rate hike. This latest data has done little to support hopes that the Fed will surprise markets by increasing the cash rate ahead of current forecasts.
The US Dollar is likely to see significant volatility late this evening with Advance Retail Sales due for publication.
Canadian Dollar
Crude oil prices advanced yesterday in response to US inventories data showing a significant decrease in stockpiles. The huge wildfire that wiped out much of Canada’s oil sands region also prompted crude prices to rise.
Although concern that Canada’s oil exports will be negatively impacted by the wildfire limited CAD gains, the currency did edge higher thanks to rising crude and positive domestic housing data.
With an absence of domestic data today, the ‘Loonie’ is likely to see movement in response to oil prices, market sentiment and US Dollar positioning.
New Zealand Dollar
The New Zealand Dollar avoided as big a depreciation as the Australian Dollar yesterday despite lack of demand for high-yielding assets. This was due to New Zealand’s Performance of Manufacturing Index rising from 54.7 to 56.5 in April.
Today’s New Zealand Retail Sales data is likely to provoke ‘Kiwi’ (NZD) volatility. However, even a positive result is unlikely to cause significant appreciation given mounting expectations that the Reserve Bank of New Zealand (RBNZ) will look to ease policy at the next available opportunity.
Data Released
March 13th 16:00 EUR German Gross Domestic Product 1.5%
March 13th 19:00 EUR Eurozone Gross Domestic Product 1.6%
March 13th 22:30 USD Advance Retail Sales 0.8%
March 14th 00:00 USD University of Michigan Confidence 89.5