Australian Dollar
Risk-aversion firmly gripped the markets yesterday as the fallout from the UK’s ‘Brexit’ vote on Friday continued, with the Australian Dollar slumping against most of the majors with the obvious exception of Pound Sterling. Investors continued to desert high-yield equities, with many global stock markets on the decline, while commodities indexes ticked lower. Barclays have further muted Australian Dollar appetite by warning that the Australian economy will be weakened by the effects of the ‘Brexit’, forcing the Reserve Bank of Australia (RBA) to cut interest rates before the end of the year. Barclays’ analysts have cut their expectations for Australian GDP and inflation. On the other hand, yesterday’s further depreciation in the Australian Dollar will lessen one of the RBA’s headaches, as policymakers had previously pointed to the currency’s strength as problematic for the economy.
With ‘Brexit’ developments certain to continue, the likelihood of this morning’s ANZ Roy Morgan consumer confidence index having an impact on the ‘Aussie’ is slim.
Sterling
There were plenty of ‘Brexit’ developments yesterday to keep market uncertainty at a high. Despite cold risk appetite, the Australian Dollar racked up gains of well over 2.3% verses Pound Sterling. The UK currency slowly weakened throughout the day as confusion reigned. George Osborne finally appeared from the woodwork and tried to assure the markets that the UK economy was strong enough to weather the ‘Brexit’ fallout, while promising there would be no emergency budget. Even the issue of when the UK would trigger Article 50 remained shrouded in mystery; EU leaders expressed a desire for the UK to do so immediately, but David Cameron said it would be for his successor – not elected until September – to initiate the process. Analysts forecast that the Bank of England (BoE) would cut rates before the end of the year, with markets even pricing in a small chance of negative interest rates.
The Bank of England will be holding a third liquidity auction due to the referendum today. This is likely to be closely watched; city banks largely rejected the offer of additional liquidity before the vote due to the belief that ‘Remain’ would win the referendum. The demand for liquidity today will give a good indication of how well prepared UK financial institutions are to deal with the current market turmoil.
Euro
The Euro was unsurprisingly weak on the whole yesterday, although gains were made against Pound Sterling and the Australian Dollar. The common currency suffered despite its safe-haven status on the uncertainty of the Brexit’s impact on the EU. The Spanish elections resulted in a somewhat calming result after voters backed the status quo, despite polls suggesting anti-austerity party Podemos may surge to victory.
The EU Parliament meets today to discuss the UK’s referendum decision, so market uncertainty is bound to be kept on the boil as news emerges from that meeting.
US Dollar
Safe-haven demand sent the US Dollar charging against its peers, with the only losses being against the more popular safe-haven Japanese Yen. Safe assets across the globe were in high demand, with government bond yields dropping and gold prices rising back towards the highs experienced as the UK’s voting results flooded in. Moody’s Analytics Chief Economist Mark Zandi helped ease any US trader fears after claiming that the Brexit would not have a big impact on the US economy, unless it leads to the break-up of the entire European Union.
US GDP and personal consumption figures for the first quarter are released today. While on their own they may not be impactful enough to move the US Dollar contrary to market sentiment, the figures could reinforce strength or curb weakness depending upon the result.
Canadian Dollar
The Canadian Dollar was trending bullishly yesterday, although it slumped against the highly in-demand US Dollar. The ‘Loonie’ advanced regardless of slumping crude oil prices, with -2% losses seen for both WTI and Brent, taking ‘black gold’ further away from the psychologically-important US$50 mark.
There is no Canadian data set for release today. Whether the Canadian Dollar weakens on correctional trading or continues advancing remains to be seen.
New Zealand Dollar
Positive data helped the New Zealand Dollar resist the weakening effect of low market risk-appetite to some extent yesterday. The ‘Kiwi’ made bullish gains on the Australian Dollar and Pound Sterling, with a small advance against the Euro also recorded. Once again the New Zealand trade balance has strengthened, with figures for May showing that the surplus increased against forecasts, rising from an upwardly revised 326 million to 358 million despite a drop to 182 million being predicted.
There is no New Zealand data set for release today, which could leave the ‘Kiwi’ vulnerable to market risk-aversion.
Data Released
June 27th 18.00 EUR ECB President Draghi Speaks in Sintra, Portugal
June 27th 18.00 EUR EU Parliament to Vote on Resolution on UK Referendum
June 27th 19.00 GBP BOE Holds Third Additional ITLR Operation Around EU Referendum
June 27th 22.30 USD Gross Domestic Product (Annualized) (1Q T) 1.0%