Australian Dollar
A combination of weakening commodity prices and poor Chinese data pushed the Australian Dollar to multi-month lows against several of its peers over the weekend. Chinese steel futures finished their worst ever week, dropping 12% and causing investors to fear that the commodity bubble was about to burst. However, after hitting its lowest level for 10 weeks against the US Dollar and a three-month low against Pound Sterling and the Euro, the Australian Dollar staged a strong rebound yesterday.
Despite the weakness in the commodity market and heightened expectation that the Reserve Bank of Australia (RBA) will cut interest rates again in the near future, the Australian Dollar’s weakness made it an attractive prospect for speculators.
Today’s weekly consumer confidence index could provide some ‘Aussie’ movement, but the major driver will be the minutes from the RBA’s May policy meeting.
Sterling
A weakening economic outlook for the UK allowed the Australian Dollar to advance on Pound Sterling. The Confederation of British Industry (CBI) cut its growth forecasts for the next two years, blaming uncertainty caused by the EU referendum. The CBI expects growth of 2% in 2016 and 2017, down from earlier forecasts of 2.3% and 2.1% respectively.
‘Brexit’ debates kept Pound Sterling muted yesterday, with George Osborne, Ed Balls and Vince Cable each delivering a speech in favour of remaining in the EU. Later, Boris Johnson gave his own speech. Johnson had already caused a rift among the Tory party after comparing the aims of the European Union to those of Hitler; later he made comments that seemed to be attacking the government over their handling of the NHS, which could create more tension between the Prime Minister and Johnson – the man many expect to succeed him.
Today’s UK consumer price index figures will cause significant volatility for AUD/GBP.
Euro
Increasing odds that the Greek bailout negotiations will be concluded before the next meeting on the 24th of May bolstered the Euro yesterday. It was reported that the Greek government would be submitting the final draft legislation to Parliament on Thursday; legislation that will enable automatic cuts to be applied in the event of missed surplus targets. Greek Prime Minister Alexis Tsipras even claimed that the country could begin issuing new bonds in 2017, a move which may allow it to exit the current bailout arrangement before the designated end date.
A speech by the ECB’s Peter Praet and Eurozone trade balance figures could generate some Euro movement, although the common currency could be more driven by its inverse relationship with the US Dollar considering the nature of the stateside data released today.
US Dollar
The latest data from China weakened the US Dollar recently, as investors once again grew concerned with the health of the global economy. A larger-than-expected slowdown in Chinese retail sales and industrial production counteracted the positive effect of recent strong US data to weaken the chances of an interest rate hike from the Federal Reserve in June.
While a positive reading from today’s US consumer price index could help to strengthen the Fed’s confidence in the US economy’s ability to handle higher borrowing costs, it is unlikely this data alone will justify a hike. The futures market currently predicts a less-than 4% likelihood that policy will be tightened during the Fed’s June meeting.
Canadian Dollar
A strong performance from domestic existing home sales data for April helped the Canadian Dollar make small advances yesterday. Home sales increased 3.1% in April, more than twice the growth seen in March. Goldman Sachs predicted that the oil market could soon see a deficit rather than an oversupply, causing crude oil to rise around 3%. Brent Crude climbed to US$49.26 per barrel, within touching distance of the key US$50 per barrel mark. This helped to lift the ‘Loonie’ slightly, although thinking about the long-term damage done to the economy by the recent wildfires in the Canadian oil sands region kept investor appetite weak.
With no high-impact Canadian data due today, sentiment is likely to continue to drive Canadian Dollar exchange rates.
New Zealand Dollar
The New Zealand Dollar was also weakened by the latest Chinese data, although yesterday’s Performance of Services indexes helped the ‘Kiwi’ make a strong recovery. The previous month’s figure was revised up to a strong growth level of 55.1, with April’s score rising to 57.7.
The Reserve Bank of New Zealand’s (RBNZ) 2-Year Inflation Expectation report is likely to cause New Zealand Dollar movement today, with the GlobalDairyTrade auction also expected to spark significant volatility.
Data Released
May 17th 11.30 AUD RBA May Meeting Minutes
May 17th 13.00 NZD Reserve Bank of New Zealand 2-Year Inflation Expectation (2Q)
May 17th 18.30 GBP Consumer Price Index (YoY) (APR) 0.5%
May 17th 18.30 GBP Core Consumer Price Index (YoY) (APR) 1.4%
May 17th 22.00 NZD Dairy Auction Whole Milk Powder MT (MAY 17)
May 17th 22.00 NZD Dairy Auction Avg. Winning Price MT (MAY 17)
May 17th 22.30 USD Consumer Price Index (YoY) (APR) 1.1%
May 17th 22.30 USD Consumer Price Index Ex Food & Energy (YoY) (APR) 2.1%