Australian Dollar
Weakening Chinese inflation caused a slump in risk-demand yesterday, dragging commodities and high-yield assets down. The Australian Dollar declined after consumer prices in China slipped from 2% to 1.9% as expected, while producer prices declined -2.6% year-on-year. Australian data was mixed, with home loans in May contracting -1% despite an acceleration on the previous month’s figures having been forecast. Investment lending posted strong growth at 3.9% after last month’s -5% decline, while the value of loans slipped -0.6%. Malcolm Turnbull finally declared victory in the Australian election after edging up to the 76 seats required for a majority. However, concerns that the mixed Senate could make it hard for the ruling Coalition to pass legislation led credit agency Moody’s to warn that continuing budgetary problems may necessitate a downgrade to their credit outlook.
Thursday promises significant Australian Dollar movement, with the unemployment rate and full time employment change figures both predicted to show a worsening in the job market.
Sterling
It was a turbulent day for AUD/GBP yesterday after the latest shock developments in the Conservative party leadership contest. Andrea Leadsom unexpectedly stood down, leaving Theresa May free to claim victory. While there was some confusion over whether one of the earlier candidates would have to re-stand or whether May would simply become Prime Minister by default, the Pound instantly began to reverse losses. The UK unit had declined earlier thanks to speculation that the Bank of England (BoE) would cut interest rates on Thursday, but these losses disappeared after the latest developments pushed the Pound higher.
AUD/GBP could regain strength over the next few days thanks to the approaching UK interest rate decision on Thursday, which may keep the Pound weak in anticipation of further policy easing.
Euro
A combination of risk-aversion and US Dollar weakness helped the Euro trend bullishly against the majority of its peers yesterday, despite the presence of several headwinds. The Italian banking crisis continued to threaten stability across the currency bloc, with a Deutsche Bank analyst suggesting Eurozone banks are in need of a €150 billion bailout. A Societe Generale strategist warned that, should Italy fall into recession, it could see the country leave the European Union, potentially triggering exits from other nations in a continuation of the ‘Brexit’ domino effect.
The Eurozone data docket is fairly empty this week, with the first of only a few medium-impact releases being the finalised German consumer price index figures for June, released today.
US Dollar
The US Dollar put on a mixed performance yesterday, with general risk-aversion helping the ‘Greenback’ make bullish gains against the commodity Dollars. However, the ‘Buck’ softened against the lower-yielding assets thanks to the overwhelming market expectation that monetary policy tightening from the Federal Reserve remains a long way off. The markets are now pricing in no chance whatsoever of a rate hike in this month’s policy meeting, with a flat 12% chance of a hike by November and 33% chance of tightening in December; one year and no rate cuts after their last hike was accompanied by suggestions of four rate increases over the course of 2016.
Friday promises to be the most volatile day for the US Dollar, featuring key Chinese growth data that could unsettle investors if it shows a weakening in the economy. The US also has domestic releases on the calendar, including advance retail sales and consumer price index figures for June.
Canadian Dollar
Crude oil prices have dropped significantly over the past couple of days, with WTI Crude trending around US$45 per barrel yesterday and Brent Crude trading around US$46. Oil dropping close to, or even below, the last key resistance point of US$45 seriously unnerved investors, who subsequently piled out of the Canadian Dollar. A small boost came late in the day when June’s housing starts figure printed at 218.3k rather than the forecast 189k, although the previous month’s figure was revised down to 186.7k.
Canada’s most important economic development this week will be Thursday’s Bank of Canada (BOC) interest rate decision. The central bank is forecast to make no changes to monetary policy, but the accompanying policy statement will be of interest. Investors will be particularly keen to get the Bank’s updated thoughts on the impact of the Alberta wildfires.
New Zealand Dollar
Yesterday’s positive domestic data couldn’t prevent the New Zealand Dollar from slumping along with other high-yield assets. As well as the inflation data, news of severe flooding in China further harmed the outlook of the country. New Zealand’s retail card spending figure showed better than double the level of month-on-month growth in June, clocking in at 1.2% instead of 0.5%. NZ card spending grew 1% after a decline of -0.6% previously.
Thursday’s Business NZ Performance of Manufacturing Index for June is the most high-profile data on New Zealand’s economic calendar this week.
Data Released
July 12th 16.00 EUR German Consumer Price Index (YoY) (JUN F) 0.3%
July 14th 00.00 CAD Bank of Canada Releases Monetary Policy Report
July 14th 08.30 NZD Business NZ Performance of Manufacturing Index (JUN)
July 14th 11.30 AUD Employment Change (JUN) 10.0k
July 14th 11.30 AUD Unemployment Rate (JUN) 5.8%
July 14th 21.00 GBP Bank of England Rate Decision (JUL 14) 0.25%
July 14th 21.00 GBP BOE Asset Purchase Target (JUL) 375b
July 15th 22.30 USD Advance Retail Sales (JUN) 0.1%
July 15th 22.30 USD Consumer Price Index (YoY) (JUN) 2.2%