Australian Dollar
A correctional rebound from the previous day’s weakness in commodities helped the Australian Dollar make a strong recovery yesterday. The ‘Aussie’ was further boosted by a new report from the Treasury detailing the impact of the UK’s ‘Brexit’ vote on the Australian economy. The report concluded that the global financial system had weathered the referendum shock well and that the Australian economy had experienced only a limited immediate impact. It also noted that there were monetary and fiscal policy options available to deal with any future complications, should they arise.
There is no Australian data scheduled for release today. With little to come from the US either, the Australian Dollar looks set to be influenced primarily by movement in the commodity markets today.
Sterling
AUD/GBP was able to trend bullishly yesterday thanks to headwinds for the Pound generated by poor domestic data. Retail sales figures for June showed a much greater slowing in growth than was expected on the year and a bigger-than-expected decline on the month. Monthly sales fell -0.9% instead of the -0.6% predicted, while annualised sales slowed from a downwardly revised 5.2% to 3.9%, instead of the anticipated 4.8%. The only silver lining was that the slowdown was blamed upon the recent poor weather, not the referendum. The fact that public borrowing was -£2 billion lower than predicted failed to provide much support for the Pound.
Today will undoubtedly be a very volatile day for the Australian Dollar to Pound Sterling exchange rate. The first PMIs to measure economic activity after the ‘Brexit’ vote are due to be released this evening. Forecasts are dovish across the board, with the preliminary manufacturing, services and composite indexes all predicted to drop well into contraction territory. This would severely weaken the Pound, while strong figures or a smaller-than-expected decline would send the Pound soaring.
Euro
The Euro remained mostly weak yesterday as the European Central Bank’s (ECB) latest policy decision approached. The Governing Council left policy on hold as markets had expected, keeping the base rate at 0.00%, the deposit rate at -0.40%, the marginal lending facility at 0.25% and the asset purchase target at €80 billion. The accompanying press conference was as expected as well, with Mario Draghi suggesting that more stimulus could be needed if ‘Brexit’ volatility worsens, although he also stressed that the Governing Council would take time to assess the situation.
A raft of preliminary Eurozone PMIs are due for release today. Like the UK indices, these will chart economic activity in the aftermath of the vote to leave the European Union. Forecasts are for the indices to weaken across the board, although most will remain firmly in positive territory, which might calm market jitters.
US Dollar
The US Dollar remained weak yesterday, even though domestic data was positive. Investors were too focussed on the latest developments from the European Central Bank to pay much attention to the US economy. As a result, the ‘Greenback’ remained in negative territory, despite the fact that jobless claims unexpectedly fell to a three-month low and US home resales hit a 9-year high.
The Markit US Manufacturing PMI is the only data on the economic calendar today; this will be the preliminary measure for July.
Canadian Dollar
The Canadian Dollar was recovering yesterday, although it trended below opening levels against the Australian Dollar. WTI oil was on the rise, although it still remained below the psychologically important US$45 per barrel mark, while Brent weakened towards US$47 per barrel. The day’s only domestic data printed well, showing a 1.8% rise in wholesale sales, compared to forecasts of just 0.2%. The previous month’s figure was revised up to 0.2% growth.
Today is an important day in terms of Canadian data. Retail sales are expected to show no growth after April’s 0.9% expansion, while the core and non-core consumer price indices are forecast to show that growth slowed by ten basis points, falling to 2% and 1.4% respectively.
New Zealand Dollar
Ironically, the New Zealand Dollar strengthened yesterday, despite the Reserve Bank of New Zealand’s (RBNZ) eagerly-awaited report signalling a rate cut was forthcoming due to an overvalued ‘Kiwi’. It suggested that exchange rates needed balancing and that the overly strong New Zealand Dollar was impairing inflation in tradable goods. Nevertheless, the only weakness the ‘Kiwi’ showed yesterday was against the similarly-strong ‘Aussie’.
With no New Zealand data due for release today, the New Zealand Dollar is likely to find itself at the mercy of market developments.
Data Released
July 22nd 17.30 EUR Markit/BME Germany Composite PMI (JUL P) 53.6
July 22nd 18.00 EUR Markit Eurozone Composite PMI (JUL P) 52.5
July 22nd 18.30 GBP Markit UK PMI Manufacturing SA (JUL P) 47.5
July 22nd 18.30 GBP Markit/CIPS UK Composite PMI (JUL P) 48.5
July 22nd 18.30 GBP Markit/CIPS UK Services PMI (JUL P) 48.7
July 22nd 22.30 CAD Consumer Price Index (YoY) (JUN) 1.4%
July 22nd 22.30 CAD Bank Canada Consumer Price Index Core (YoY) (JUN) 2.0%
July 22nd 23.45 USD Markit US Manufacturing PMI (JUL P)