Australian Dollar
Yesterday’s release of the Reserve Bank of Australia’s (RBA) May meeting minutes caused an AUD surge. The minutes revealed that the RBA had been less dovish than markets assumed after cutting rates to an historic low of 1.75%. Several policymakers were reluctant to cut rates and the loosening of monetary policy was the subject of much debate.
The revelation that the RBA was less pessimistic than previously thought saw markets slash the chances of further rate cuts. Prior to the release of the minutes, expectations for cuts in August and September were 80% and 92% respectively. The odds of two cuts being delivered by February 2017 is now 60%.
Today’s Westpac Leading Index could spark movement for the ‘Aussie’, with further support or weakness coming from a speech by the RBA’s Guy Debelle and the Wage Cost Index.
Sterling
The Australian Dollar was kept close to opening levels against Pound Sterling for much of yesterday’s session, until the weakening effect of poor UK inflation data finally saw the ‘Aussie’ charge upwards. Annual consumer prices rose 0.3% after growth of 0.5% previously, while core prices increased 1.2%, -0.3% lower than March’s figure.
Further ‘Brexit’ debates finally provided an opportunity for the Australian Dollar to advance. It emerged that David Cameron had been planning with Rupert Soames, the boss of Serco, to drive business opinion towards supporting the EU even before he had finished negotiating his reforms. Boris Johnson responded to the story by calling Cameron’s EU negotiations ‘a fiction designed to bamboozle the public’.
However, further comments from Johnson, Vote Leave chair Gisela Stuart and Nigel Farage have weakened the positon of the ‘Leave’ campaign. Farage openly voiced his view that there could be considerable demand for another referendum if the ‘Leave’ campaign is narrowly defeated. Johnson avoided mentioning another referendum, but echoed Farage’s sentiment that many British voters would be disillusioned by the decision. ‘Remain’ campaigners claimed that the focus on a second referendum suggests the ‘Leave’ campaign know that they have already lost the debate.
UK unemployment and wage data could move the Pound today.
Euro
The Euro was weak against the Australian Dollar yesterday after the International Monetary Fund (IMF) further complicated the Greek debt negotiations. The Fund is not yet signed on as a lender in the latest Greek bailout deal, but Eurozone creditors have been hoping to persuade it to participate. However, the IMF have now proposed that debt relief for Greece, in the form of fixed borrowing costs and delayed interest rate payments, should continue until 2040.
However, these proposals far outweigh the support Eurozone creditors have said they would be willing to offer Greece. The introduction of a fresh obstacle between the two parties and a deal caused the Euro to soften against several of the majors.
With investors still anticipating further easing from the European Central Bank (ECB), today’s Eurozone consumer price index figures for April could create some Euro volatility.
US Dollar
Despite consumer prices rising as expected in April, the US Dollar remained generally soft against the majors and deep in negative territory verses the Australian Dollar. With the latest strong data, it seems that traders realised their gains, with the resulting profit-taking softening the US Dollar again. This suggested that the markets don’t think the 1.1% annual non-core CPI growth and the 2.1% core growth will have been enough to motivate the Fed into hiking rates next month.
A surging Australian Dollar also kept risk appetite firmly on, supported by strength in crude oil and weakening appetite for the safe-haven US Dollar.
The only data from the US today is the MBA Mortgage Applications figure.
Canadian Dollar
Weak factory sales and the resurging threat of wildfire in Fort McMurray pushed the Canadian Dollar into a slump yesterday. The total value of factory sales fell by -0.9% in March, while February’s figure was downwardly revised, creating the biggest two-month slump for over 12 months. While the drop wasn’t as much as predicted, the fact that nearly 90% of Canadian manufacturing saw a drop in sales weakened sentiment.
Further cooling appetite for the ‘Loonie’ was the news that oil sands workers around Fort McMurray have been evacuated again. 8,000 workers have been told to leave due to fears that another blaze could break out and threaten the city again.
There is no particularly impactful Canadian data due out today, so news regarding the wildfire could continue to dominate sentiment.
New Zealand Dollar
The New Zealand Dollar seesawed yesterday following the release of the Reserve Bank of New Zealand’s (RBNZ) 2-year inflation expectation. A 0.01% increase in inflation outlook to 1.64% worried investors, who feared the RBNZ may respond by cutting rates; as they did after the last disappointing price growth forecast.
The ‘Kiwi’ later rebounded, helped higher by a 2.6% increase in the GlobalDairyTrade Price Index following the latest auction.
There is little impactful New Zealand data due out today, with RBNZ Governor Graeme Wheeler’s latest speech being a private affair.
Data Released
May 18th 10.30 AUD Westpac Leading Index (MoM) (APR)
May 18th 18.30 GBP Claimant Count Rate (APR) 2.1%
May 18th 18.30 GBP Average Weekly Earnings (3M/YoY) (MAR) 1.7%
May 18th 19.00 EUR Euro-Zone Consumer Price Index (YoY) (APR F) -0.2%
May 18th 19.00 EUR Euro-Zone Consumer Price Index – Core (YoY) (APR F) 0.7%
May 18th 21.00 USD MBA Mortgage Applications (MAY 13)