Australian Dollar
Today’s inflation data has been weighing on the minds of investors for several days now, but the Australian Dollar strengthened yesterday in anticipation. Consumer confidence ticked higher on the previous week and a weakening US Dollar also helped to inflate the ‘Aussie’.
Today’s consumer price index data will be key in determining the likely path of monetary policy. The Reserve Bank of Australia (RBA) noted in its latest meeting minutes that further data would help it build a clearer picture of Australia’s economy. The RBA has a history of adjusting policy after inflation data anyway, so market expectations are for the CPI to weaken the outlook of the central bank. This would raise the likelihood of an interest rate cut at the next policy meeting, so while the ‘Aussie’ is currently strengthening, it is facing numerous downside risks.
Sterling
Pound Sterling was unable to provide much resistance against the Australian Dollar’s advance yesterday. The currency was weakened by an apparent change of heart by Bank of England (BoE) official Martin Weale. He had previously calmed expectations of a rate cut in August after claiming that the Monetary Policy Committee (MPC) should wait for more data before acting. However, Weale yesterday commented that subsequent data releases – namely the PMIs published on Friday – were ‘a lot worse’ than he had anticipated and hinted that a rate cut may be necessary.
If final UK GDP figures for the second-quarter are revised higher as forecast, Pound Sterling could receive a boost.
Euro
A lack of domestic data saw the Euro weaken yesterday, driven lower by market sentiment. The Italian banking crisis and further rumours over whether or not the EU should sanction Spain and Portugal for breaching budget deficit targets weakened sentiment. Traders were also holding their positions ahead of tomorrow’s Federal Reserve interest rate decision. A more hawkish outlook would strengthen the US Dollar, weakening the Euro thanks to the negative correlation between the two currencies. However, the common currency may not soften dramatically, as the European Central Bank (ECB) want tighter Fed policy to weaken the Euro as this may boost growth and spending without the Governing Council having to increase stimulus measures themselves.
Considering the German GfK consumer confidence survey is expected to show only a marginal slip in sentiment, the Eurozone’s only medium-impact data for today may have little impact upon the Euro.
US Dollar
The US Dollar was weak almost across the board yesterday, thanks to a strong Japanese Yen and anticipation of the day’s data and tomorrow’s Federal Open Market Committee (FOMC) announcement. The Yen was strong because traders were not expecting the Bank of Japan (BOJ) to deliver additional stimulus measures on Friday to the level required to boost the economy, increasing demand for the safe-haven Japanese unit. Consumer confidence in July had been predicted to weaken, which would have undermined the idea that the Fed will issue a more upbeat economic assessment as a result of its latest policy meeting. In reality, the index weakened less-than-expected, falling from a downwardly-revised 97.4 to 97.3 instead of 95.7.
US durable goods orders figures are due out later today, although with the FOMC decision just around the corner, markets may not react particularly strongly to the data.
Canadian Dollar
Continued weakness in the oil markets saw the Canadian Dollar trending at its lowest level in nearly four months thanks. The results of a survey of professional accountants who hold leadership positions further weighed on the ‘Loonie’. The Chartered Professional Accountants of Canada (CPA) Business Monitor for the second quarter showed that over half of respondents have a neutral outlook on the Canadian economy, while 26% are pessimistic. Oil continues to be identified as the top challenge for the Canadian economy; the seventh quarter in a row that this has been the case. Respondents were also worried that the US would become more protectionist after the election – regardless of which candidate triumphs.
New Zealand Dollar
Figures showing a sixth-consecutive monthly trade surplus in June helped the New Zealand Dollar remain strong yesterday. The latest figures showed a slightly better-than-expected performance from exports, which weakened from NZ$4.57 billion to NZ$4.26 billion, instead of the NZ$4.22 billion forecast. The ‘Kiwi’ was also boosted by the weakness in the US Dollar.
Data Released
July 27th 11.30 AUD Consumer Prices Index (YoY) (2Q) 1.1%
July 27th 11.30 AUD Consumer Prices Index RBA Trimmed Mean (YoY) (2Q) 1.5%
July 27th 16.00 EUR German GfK Consumer Confidence Survey (AUG) 9.9
July 27th 18.30 GBP Gross Domestic Product (YoY) (2Q A) 2.1%
July 27th 22.30 USD Durable Goods Orders (JUN P) -1.1%