- ‘Aussie’ Ignores Severe Headwinds – US hike bets and construction slowdown overlooked
- AUD/GBP Slumps on WTO ‘Brexit’ Claims – WTO warns of £9 billion in extra important tariffs
- AUD/EUR Edges Higher – Greek debt deal and positive IFO survey scores not enough to bolster Euro
- Mixed New Zealand Dollar after Trade Figures – Huge increase in April trade surplus
Australian Dollar
Despite facing severe headwinds, the Australian Dollar managed to make small gains against many of its peers yesterday. The ‘Aussie’ advanced regardless of a -2.6% slowdown in construction work during the first quarter, which is predicted to be a serious drag on economic output. Further warnings about the impracticality of Australia’s recent budget, as well as news that the dairy sector would receive an AU$555 million rescue package to help struggling farmers, failed to weigh the ‘Aussie’ down.
Today could see significant volatility for the Australian Dollar, however, with key US data likely to significantly firm or soften US rate hike bets, and two public appearances from the Reserve Bank of Australia’s Guy Debelle scheduled.
Sterling
The Australian Dollar slumped against Pound Sterling yesterday after two key arguments for a ‘Brexit’ were severely undermined by leading institutions. First, the Institute for Fiscal Studies (IFS) called the anti-EU claim that the UK sends £350 million per week to Brussels ‘absurd’. Secondly, the head of the World Trade Organisation (WTO) Roberto Azevedo warned that leaving the EU would see the UK facing an additional £9 billion in import tariffs, with an additional £5.5 billion in export tariffs for British businesses. Vote Leave had previously suggested the UK could trade through the World Trade Organisation, so that fact that WTO has warned against a ‘Brexit’ could severely undermine the legitimacy of those claims.
Today’s first-quarter UK GDP figures are likely to cause significant volatility for Sterling.
Euro
Heightened confidence of a Federal Reserve rate hike in June kept the Euro weak yesterday. This was despite an amicable resolution to the Greek debt crisis, with over €10 billion of bailout funds unlocked at the latest Eurogroup meeting. The participation of the International Monetary Fund (IMF) in the bailout is looking increasingly likely after both groups made concessions regarding debt relief. On top of this, the German IFO survey results all printed above forecasts, but the Euro remained weak.
There is no data due from the Eurozone today.
US Dollar
The US Dollar remained soft yesterday despite a huge surge in new home sales (which increased 16.6%) suggesting a firming economy. St Louis Fed President James Bullard attempted to cool rate hike expectations, noting that while labour market data was favourable, there were other areas of concern. He also stated that ‘there’s no reason to prejudge June’ in terms of a rate hike. In the run up to April’s rate hike meeting, the Fed attempted to backpedal from previous hawkishness, so Bullard’s comments have weakened ‘Greenback’ appetite on fears of a repeat performance by US policymakers. The US Dollar weakened further after May’s preliminary Markit Composite dropped from 52.8 to 50.8, bringing it uncomfortably close to contraction territory.
Today sees several Fed officials giving speeches, but trader focus is likely to return to the data. The US durable goods orders figure is considered one of the most influential pieces of domestic data left before the June policy meeting. Considering Bullard’s comments about data yesterday, April’s preliminary orders report will need to show a strong rise in order to keep hike expectations firm.
Canadian Dollar
The Canadian Dollar made strong advances yesterday after the Bank of Canada (BOC) left interest rates on hold at 0.5%. The markets had been expecting this and the dovish tone of the accompanying policy statement, protecting the ‘Loonie’ in advance from bearish sentiment. Although the BOC forecast that the Alberta wildfires could cut -1.25% from GDP growth in the second quarter, it also predicted the economy would be quick to rebound in the third quarter. Keeping the ‘Loonie’ strong was the fact that, while dovish, the BOC didn’t express an inclination towards further policy easing.
There is no Canadian data set for release today.
New Zealand Dollar
A strong New Zealand Dollar advance followed the release of the latest trade balance figures, although gains were quickly lost as heightened Fed hike expectations eroded the ‘Kiwi’s gains once yesterday’s European session began. April’s trade surplus unexpectedly swelled from 189 million to 292 million, narrowing the year-to-date trade deficit down to -3658 million against predictions of a rise from -3766 million to -3972 million.
There is no New Zealand data due for release today, but tonight’s key US release is likely to cause significant volatility for commodity assets such as the ‘Kiwi’.
Data Released
May 26th 18.30 GBP Gross Domestic Product (QoQ) (1Q P) 0.4%
May 26th 18.30 GBP Gross Domestic Product (YoY) (1Q P) 2.1%
May 26th 22.30 USD Initial Jobless Claims (MAY 21) 275k
May 26th 22.30 USD Continuing Claims (MAY 14) 2142k
May 26th 22.30 USD Durable Goods Orders (APR P) 0.5%
May 26th 23.00 AUD RBA’s Debelle Opening Remarks, Press Conference in New York