Australian Dollar
The Australian Dollar was mostly weak yesterday as expectations of an interest rate cut from the Reserve Bank of Australia (RBA) continued to rise. Key inflation data is now just a few days away and markets are becoming more and more convinced that the result will justify further policy easing from the RBA. By Friday, expectations of a cut had risen to 65%. Earlier predictions had put the odds of a cut at 56%. With the ‘Aussie’ likely to weaken as a result of future policy action, demand for safe-haven Australian government bonds has seen prices pushed higher, lowering yields.
Wednesday will be the most important day this week in terms of Australian Dollar movement and outlook as it holds the release of the much-anticipated second quarter consumer price index. If these figures print well, the Australian Dollar is likely to see bullish appreciation as expectations of a rate cut fall. Should they show a stagnant or a falling pace of inflation, the ‘Aussie’ will dive due to an increasingly dovish outlook on monetary policy.
Sterling
The shock of the UK’s vote to leave the European Union weighed more heavily on the nation’s economy than had been predicted, according to preliminary PMIs released on Friday. As a result, the Australian Dollar was able to make bullish gains, despite slumping into negative territory against the rest of its peers. These were the first measures of growth in the post-Brexit environment and all fell into contraction territory. Manufacturing performed the best out of all the indices, only dropping to 49.1, rather than slumping to 47.5 as anticipated. The services and composite indexes were even more dire than anticipated, with services falling to 47.4, while the composite index slumped to 47.7.
After a quiet start to the week, Wednesday promises some severe Pound volatility with the release of the final second-quarter gross domestic product figures. Should the figures be revised lower due to stronger-than-expected Brexit shock, the Pound could face selling pressure for the rest of the week.
Euro
Eurozone PMIs showed that it was the UK that bore the brunt of the Brexit fallout. Among a slew of sectorial readings, only the Eurozone manufacturing index performed below forecast, although it clocked in just ten basis points lower-than-expected and remained well above the neutral 50 mark. All the other indexes for France, Germany and the Eurozone either fell less than was predicted, or rose above forecasts.
Traders will have to wait until Thursday for the first tier-one Eurozone data to be released; this will be the German unemployment change and rate figures for July. The preliminary German consumer price index will follow later on.
US Dollar
More positive domestic data on Friday built upon the confidence generated after Thursday’s strong readings, keeping the US Dollar on impressive form as the weekend neared. The data in question was the preliminary Markit manufacturing PMI for the US, which strengthened further-than-forecast. Predicted to rise from 51.3 to 51.5, the index instead climbed to 52.9. This helped improve sentiment towards the US economy. As a result, gold prices fell, with investors feeling less cautious than before.
Wednesday’s consumer confidence index for July and June’s durable goods orders figures are likely to provide significant US Dollar movement. While even strong data is almost certain not to be enough to provoke an interest rate hike from the Federal Reserve when it meets on Thursday, it could help to improve the economic outlook, raising bets of tighter policy before the end of the year.
Canadian Dollar
The Canadian Dollar was weak on Friday, but gained support after consumer price index growth remained at the previous month’s levels, rather than declining by -0.1% as predicted in June. Weak monthly growth weighed on the minds of investors, however; core prices saw no change on the month while non-core prices grew 0.2%. This represented a smaller slowdown in growth than had been expected, but still showed that the rate of price increases had halved compared to the month prior.
The week ahead is devoid of Canadian ecostats until the very end, with late Friday promising May’s gross domestic product figures. Traders will again be interested to see if the Alberta wildfires have had an impact upon economic growth.
New Zealand Dollar
The New Zealand Dollar put on a polarising performance on Friday, trending bullishly against its currency peers and the weakened Pound Sterling while registering mild losses verses more secure assets. There was no domestic data for New Zealand released on Friday and commodity markets were in decline, but stronger headwinds for the other commodity Dollars left the ‘Kiwi’ as the risky asset of choice for investors still hunting higher yields.
There are few items of domestic data scheduled for release from New Zealand over the coming days. The most high-impact releases will come on Tuesday, when June’s trade balance figures will be released.
Data Released
July 26th 08.45 NZD Trade Balance (New Zealand dollars) (JUN)
July 27th 00.00 USD Consumer Confidence (JUL) 95
July 27th 11.30 AUD Consumer Prices Index (YoY) (2Q)
July 27th 18.30 GBP Gross Domestic Product (YoY) (2Q A)
July 27th 22.30 USD Durable Goods Orders (JUN P) -0.4%
July 28th 17.55 EUR German Unemployment Change (JUL)
July 28th 17.55 EUR German Unemployment Rate s.a. (JUL)
July 29th 22.30 CAD Gross Domestic Product (YoY) (MAY)