Australian Dollar
As markets expected, the Reserve Bank of Australia (RBA) cut interest rates at yesterday’s policy meeting. A -0.25% cut takes the official cash rate down to a new historic low of 1.50%. The Australian Dollar initially dipped in response, but because the policy adjustment had been so strongly anticipated, it had already been priced into the ‘Aussie’. As a result, the Australian Dollar quickly recovered and spent most of the session making bullish gains, even though domestic trade balance figures showed an unexpected and significant worsening in the trade deficit.
The Australian Dollar could be weakened today by the AiG Performance of Services Index for July, which is forecast to fall from 51.3 to 50, a score which indicates no growth. Considering the Australian economy is attempting to transition away from mining, weak growth in the services sector suggests the transition could face headwinds. Also out today will be the second-quarter retail sales excluding inflation figures.
Sterling
The Australian Dollar trended bullishly against the Pound yesterday, even though the UK unit was experiencing a strong recovery. This was completely in contrast with the day’s data, with the latest construction PMI revealing the sector was declining at its fastest pace since 2009. However, compared to June’s reading, the July index only fell by -0.1, compared to the -2 point drop anticipated. This cheered the markets, with investors assuming the sector had pre-empted the Brexit shock when it weakened in June.
Final versions of the Markit services and composite PMIs for July are due out later today. The indices have already fallen significantly into contraction territory following the UK’s Brexit referendum, so a further downward revision would give AUD/GBP a chance make bullish gains. The forecasts are for no change, but Monday’s manufacturing PMI had a similar prediction and it weakened considerably on the initial forecast.
Euro
Despite strong producer price index figures, the Euro weakened yesterday. Producer prices unexpectedly accelerated on the month, growing 0.7% after the previous month’s 0.6%, rather than slowing to 0.4% as forecast. Annualised growth continued to decline, but the pace slowed from -3.8% to -3.1%. The fact that Commerzbank issued a profit warning, shortly after markets had been cheered by the latest European Central Bank (ECB) bank stress tests, reminded investors that the Eurozone banking sector is far from rosy.
A slew of finalised PMIs for the Eurozone as a whole, as well as readings for individual member states, are due out today. No changes are expected; a result which could boost the Euro, as it would provide further evidence that the Eurozone has so far escaped Brexit volatility. Eurozone retail sales figures will follow shortly after.
US Dollar
The Federal Reserve’s Robert Kaplan attempted to convince markets that there was still a possibility that rates would be hiked in the September policy meeting yesterday. Investors were clearly having none of it, however, with futures still showing an 85% probability that US interest rates will remain at their current level. In fact, markets believe it will be June before interest rates increase. Kaplan’s words weren’t given much credence due to the fact that he is not currently a voting member of the Federal Open Market Committee (FOMC) and won’t be until 2017.
Today is a light day for US data, but midnight sees the release of the key US ISM non-manufacturing composite index. If this repeats the performance of the ISM Manufacturing index and weakens, the US Dollar is likely in for a steep decline.
Canadian Dollar
The Canadian Dollar was largely weak yesterday as oil markets continued to roil, with domestic data providing little in the way of tailwinds. The RBC Canadian Manufacturing PMI for July ticked higher by ten basis points to 51.9 which, while positive, was hardly enough to cheer markets. WTI oil had dropped below US$40 per barrel at the beginning of the session, but crude later rebounded back above that level.
There is no Canadian data scheduled for release today.
New Zealand Dollar
Positive data helped the New Zealand Dollar trend bullishly yesterday. Firstly, the latest survey of economists by the Reserve Bank of New Zealand (RBNZ) found that expectations for two year inflation had risen marginally. While forecasts were for inflation to remain significantly below the RBNZ’s target of 2%, with the survey suggesting 1.65%, that fact that the figure was creeping upwards at least showed pressures were building. Later the GlobalDairyTrade auction yielded a 6.6% increase in the dairy price index.
There are several pieces of New Zealand data on the calendar today, although they are all considered relatively low-impact reports. Earnings data, including average hourly earnings, will be followed by the ANZ Commodity Price index.
Data Released
August 3rd 08.45 NZD Average Hourly Earnings (QoQ) (2Q) 0.9%
August 3rd 09.30 AUD AiG Performance of Service Index (JUL)
August 3rd 18.30 GBP Markit/CIPS UK Services PMI (JUL F) 47.4
August 3rd 18.30 GBP Markit/CIPS UK Composite PMI (JUL F)
August 3rd 19.00 EUR Eurozone Retail Sales (YoY) (JUN) 1.8%
August 4th 00.00 USD ISM Services/Non-Manufacutring Composite (JUL) 56