Australian Dollar
A significant drop in Chinese iron ore futures caused the Australian Dollar to weaken yesterday. Futures for delivery in September 2016 fell until they hit the maximum daily drop limits before recovering slightly to end the session with losses of 5%. Futures dropped after new figures showed Chinese port iron ore stockpiles were nearly 8% higher than at the beginning of the year; residing at their highest level since March 2015.
Despite this creating downside risks to the Australian Dollar, the ‘Aussie’ was saved from a larger depreciation by weak market sentiment surrounding the Euro and US Dollar.
As well as the ANZ Roy Morgan Weekly Consumer Confidence Index being released, Reserve Bank of Australia (RBA) Governor Glenn Stevens is due to make a speech in Sydney today.
Sterling
The Australian Dollar lost some ground to Pound Sterling yesterday, with both sides of the EU referendum debate once again on the campaign trail. George Osborne released the latest Treasury forecast for the impact of a ‘Brexit’ vote, suggesting it could tip the UK into a year-long ‘DIY recession’. Under the Treasury’s estimates, inflation would also rise sharply, while house prices could increase 10%. Vote Leave rejected the predictions, claiming that while George Osborne set up the Office for Budget Responsibility (OBR) because no one trusted the Treasury’s forecasts anymore, he hasn’t asked the OBR to produce a forecast. They suggested this was evidence of the Treasury’s bias.
Today’s UK public borrowing figures for April could cause significant volatility for the Pound, especially if the Chancellor tries to link the forecast for higher borrowing figures to the uncertainty generated by the referendum debate.
Euro
Yesterday’s various PMIs weakened the Euro after showing mixed results overall. The French manufacturing index continued to register a contraction score, failing to rise towards neutral territory by as much as forecast. While Germany’s PMIs and the French service and composite indexes all bettered forecasts, the Eurozone indexes all disappointed, with the services PMI holding steady and the manufacturing and composite readings slowing. Even rumours that Eurozone creditors would agree to provide an €11 billion tranche of bailout funding at Tuesday’s meeting wasn’t enough to help the Euro escape negative territory against most of the majors. The weakened Australian Dollar and Canadian Dollar both suffered small losses against the common currency, however.
Today is a heavy data day for the Eurozone, with German GDP forecasts and the latest ZEW survey results due for release and a speech from the ECB’s Chief Economist, Peter Praet on the cards.
US Dollar
Although last week’s Fed meeting minutes and policymaker comments boosted rate hike expectations, those hopes appeared to have cooled over the weekend. The US Dollar saw subdued trading on Monday, with markets re-evaluating the likelihood of tighter monetary policy being delivered in June. However, Bank of St. Louis Fed President James Bullard boosted the ‘Greenback’ slightly when he said that there were more factors favouring a slow normalisation of monetary policy than were justifying frozen interest rates.
The Fed’s Harker is due to speak soon and, with no data due from the US today, his words could be the main driver for US Dollar movement for the rest of the session.
Canadian Dollar
The Canadian Dollar was weak yesterday with domestic markets closed for the Victoria Day national holiday. The resulting thin trading volume helped to weaken the ‘Loonie’, despite some positive news from the Conference Board of Canada. According to the Board, the negative hit to GDP from the Alberta wildfires will be cancelled out by other factors, including the fact that the construction industry will be boosted by the rebuilding effort.
There is no Canadian data scheduled for release today.
New Zealand Dollar
Falling expectations of action from the US Federal Reserve at the next policy meeting helped to boost the New Zealand Dollar yesterday. There was speculation about the Reserve Bank of New Zealand (RBNZ) as well, with markets lowering the odds of monetary tightening. The chances of a rate cut from the RBNZ have plunged from 76% to 20% in just 13 days, boosting ‘Kiwi’ appetite.
There is no data for New Zealand due out today.
Data Released
May 24th 13.05 AUD RBA’s Stevens Speech in Sydney
May 24th 16.00 EUR German Gross Domestic Product n.s.a. (YoY) (1Q F) 1.3%
May 24th 18.30 GBP Public Sector Net Borrowing (Pounds) (APR) 5.8b
May 24th 19.00 EUR German ZEW Survey (Economic Sentiment) (MAY)
May 24th 19.00 EUR Eurozone ZEW Survey (Economic Sentiment) (MAY) 12.0