Australian Dollar
The Australian Dollar plummeted yesterday after credit ratings agency Standard & Poor’s announced that it had downgraded the outlook of Australia’s prized AAA credit rating from ‘stable’ to ‘negative’. Blaming political deadlock, due to the neck-and-neck result from the recent federal election, S&P noted that Australia could lose its top rating within two years. While the Australian Dollar is considered a high-risk asset, Australia itself is considered a secure haven for investors, with its government bonds in high demand thanks to the country having survived 25 years without a recession – a near record. For this reason, S&P’s downgraded outlook caused serious shivers in the market.
There is no Australian data set for release today, but the presence of high-tier US data could threaten to prolong the ‘Aussie’ decline if the positive forecasts are met.
Sterling
AUD/GBP slumped yesterday. The Pound has fallen so far in recent days, with AUD/GBP hitting a 33-month high on Tuesday, that it has become an attractive prospect to investors again. Having met resistance, the Pound trended bullishly yesterday, despite a raft of adverse economic developments. Several UK property funds announced that their values had been significantly downgraded by falling prices since the ‘Brexit’ vote, S&P cut the outlook of several UK banks, and multiple institutions forecast further large drops for the Pound. Investors seemed content to focus on the latest industrial and manufacturing production data, however, which performed much better-than-predicted.
The UK trade balance figures today will likely be keenly dissected considering the debate about what kind of trade deal the UK should press for – and needs – from the EU continues to rage.
Euro
Domestic data and the latest European Central Bank (ECB) meeting minutes weakened the Euro yesterday, with the common currency recording significant declines against its peers. German industrial production figures for May disappointed, with seasonally-adjusted month-on-month production declining -1.3% when stagnation was expected, while yearly production on a non-seasonally adjusted basis declined -0.4% instead of growing 1.5%. The ECB meeting minutes showed that the Governing Council were worried by the prospect of a ‘significant’ impact upon the Eurozone from the UK’s ‘Brexit’ vote, further weakening sentiment.
Eurozone trade balance data is set for release today and is expected to show that the trade surplus narrowed in May from €25.7 billion to €23.5 billion.
US Dollar
The US Dollar was weak yesterday, although it gained on the Australian Dollar thanks to the S&P ratings update. The day’s job data was mixed, with the rate of initial jobless claims slightly lower than expected, while continuing claims failed to fall quite as far as expected, with the previous figure revised higher. Overall, continually weak odds of monetary tightening from the Federal Reserve kept US Dollar appetite weak.
Key US labour market data will be published later this evening. The unemployment rate is expected to creep up, while the headline Non-Farm Payrolls should recover to a more normal 180k after last month’s shock 38k. If it doesn’t make a strong recovery, the US Dollar is likely to plummet. If it does recover, the ‘Greenback’ might not find itself overly moved due to there being almost no chance that the Federal Reserve will hike rates this year, even with a strong labour market.
Canadian Dollar
After two days of losses, crude oil began to recover yesterday, pushing the Canadian Dollar into a bullish rise. The latest building permits figure had little impact upon the ‘Loonie’s gains, despite disappointing forecasts of 1.5% growth to instead show a decline of -1.9%. Meanwhile, Canada’s top banking regulator announced it was tightening its expectations for banks issuing mortgages in an attempt to reign in soaring house prices in regions such as Toronto and Greater Vancouver.
The Canadian Dollar could be set to reverse yesterday’s gains if today’s unemployment rate figure does show that joblessness crept up from 6.9% to 7% as forecast.
New Zealand Dollar
Risk appetite was firmly on yesterday, but with the Australian Dollar left unappealing after the S&P announcement, the New Zealand Dollar was firmly in the spotlight. As a result, the ‘Kiwi’ racked up significant gains verses many of the majors, advancing 1.4% against the US Dollar, 1.5% against the Australian Dollar and 1.6% against the Euro.
There is no New Zealand data on the calendar today, but – like the Australian Dollar – the ‘Kiwi’ is likely to react strongly to the day’s important US releases.
Data Released
July 8th 16.00 EUR German Trade Balance (euros) (MAY) 23.5b
July 8th 18.30 GBP Total Trade Balance (Pounds) (MAY) -£3575m
July 8th 22.30 USD Unemployment Rate (JUN) 4.8%
July 8th 22.30 USD Change in Non-farm Payrolls (JUN) 180k
July 8th 22.30 CAD Unemployment Rate (JUN) 7.0%
July 8th 22.30 CAD Net Change in Employment (JUN) 6.5k