Australian Dollar
Weak domestic data initially weakened the Australian Dollar on Friday. Producer price index growth re-entered positive territory on the quarter, but growth on the year slowed from 1.2% to 1%. Private sector credit slowed from 0.4% to 0.2% on the month in June instead of firming to 0.5%, while on the year growth unexpectedly weakened from 6.5% to 6.2%. However, the ‘Aussie’ downtrend turned into a bullish recovery after the latest US data saw markets pricing out an interest rate hike at any point in the next twelve months.
The Reserve Bank of Australia (RBA) will be making its highly-anticipated interest rate decision tomorrow. Markets are widely expecting a cut, so the Australian Dollar could be under downside pressure this week.
Sterling
To begin with, AUD/GBP softened on Friday as the Pound recovered from earlier weakness. The GfK Consumer Confidence survey (released at midnight UK time) had weakened the Pound again overnight, but by the time European trading resumed AUD/GBP was on the decline. This was despite the survey data revealing the strongest drop in sentiment for 26 years, with confidence at a three-year low. Later, the Pound softened again with little support available to prevent the ‘Aussie’ advancing.
Two key releases to watch out for this week are Tuesday’s Markit/CIPS construction PMI, which had dropped into contraction territory even before the referendum vote was actually held, and the Bank of England (BoE) policy meeting. It is widely expected that the BoE will cut interest rates and there is a possibility that the currently dormant quantitative easing programme could be resumed.
Euro
Negative correlation between the Euro and the US Dollar should have seen the common currency strengthen on Friday thanks to the ‘Greenback’s weakness. However, the commodity currencies were boosted further, keeping the Euro weak on several fronts. Eurozone data was largely positive, apart from French GDP, which showed no growth on the quarter and failed to strengthen as-much-as-expected on the year. While Eurozone GDP declined, it did so by just ten basis points, rather than the twenty predicted. Consumer prices bettered expectations as well.
The coming week is quieter in terms of Eurozone data than last week, with Wednesday’s Eurozone retail sales being the first impactful data on the calendar.
US Dollar
The US Dollar slumped on Friday after a worse-than-expected data docket. Second-quarter annualised GDP had been predicted to accelerate bullishly from 1.1% to 2.5%. In actuality, not only did GDP only rise to 1.1%, the first quarter’s expansion figures were cut down to 0.8%. Personal consumption posted a strong rise, but the final figure of 4.2% was -0.2% below forecast. The news pushed the possibility of a rate hike in 2016 off the table in the eyes of many economists and vindicated the Fed’s more cautious-than-expected outlook after the latest policy meeting.
The outlook for the US economy looks set to weaken further over the coming days, with all of the tier-one US data predicted to weaken on previous figures. The first of these releases will be Tuesday’s ISM manufacturing index, predicted to decline from 53.2 to 52.4.
Canadian Dollar
After a week of being ravaged by the slumping crude oil markets, the Canadian Dollar was finally responding to some domestic data; unfortunately the results were dire. Figures showed that monthly gross domestic product contracted more-than-expected in May, weakening from 0.1% to -0.6% instead of -0.5%. Year-on-year GDP weakened from 1.5% to 1%, -0.2% below forecasts. The figures pointed to a greater-than-expected impact from the Alberta wildfires, which had halted oil production in the region for two weeks.
The coming week is barely any better in terms of Canadian data than the previous one. Once again, Friday will be the day to look out for, with the unemployment rate and net change in employment figures due for release.
New Zealand Dollar
Domestic data may have been largely poor, but the weakening US Dollar and virtually extinguished hopes of a US interest rate hike in 2016 pushed the New Zealand Dollar into a bullish rise on Friday. The number of building permits issued in June surged compared to May, with 16.3% growth in permits issued. However, the ANZ Activity Outlook weakened from 35.1 to 34.1 and the NBNZ Business Confidence index dropped from 20.2 to 16.0. Risk-appetite following the US Dollar’s demise was the stronger motivating factor, however, keeping the ‘Kiwi’ soaring.
The next dairy auction takes place on Tuesday, so the New Zealand Dollar looks likely to experience strong movement in response to the results.