Australian Dollar
A strong US Dollar forced the Australian Dollar lower yesterday, with AUD failing to hold up despite supportive domestic data. The AiG performance of Service Index for July had been forecast to drop from 51.3 to a no-growth score of 50, but instead strengthened to 53.9. The ‘Aussie’ was weakened by demand for the safe-haven US Dollar, which left higher-yielding assets less appealing to investors. Concerns over the iron ore market also weighed on the Australian Dollar; prices were increasing, but reports suggesting the Chinese steel industry had already peaked pointed at a downtrend again. The latest figures also showed that global mining companies, including Australia’s Rio Tinto, were finding that weak iron ore prices were dragging on their underlying earnings.
The only Australian data scheduled for release today is the second-quarter retail sales excluding inflation figures, which are predicted to grow at a consistent 0.5% pace.
Sterling
The Australian Dollar to Pound exchange rate held opening levels during yesterday’s session. Finalised versions of the UK’s first post-Brexit PMIs showed no change to the service sector score and a small -0.2 point revision to the composite. Despite this being the fastest rate of shrinkage in the UK economy since the 2009 financial crisis, markets were relieved that the key service sector hadn’t suffered an even worse hit from the Brexit referendum results.
The Bank of England’s (BoE) Monetary Policy Committee (MPC) meets today to provide its policy announcement. Markets are expecting interest rates to be cut to 0.25% and there is some debate as to whether or not policymakers will decide to implement the quantitative easing programme, which is currently dormant. The latest iteration of the Inflation Report will also be released today, making this another ‘Super Thursday’ in terms of BoE news.
Euro
A strong US Dollar pushed the Euro lower yesterday, with a run of largely positive Eurozone PMIs failing to cheer the markets. All but the German and Italian composites and the German services bettered estimates, advancing further into growth territory than markets had expected. The German composite held steady as expected, while the Italian composite and German services printed below-forecast. Eurozone retail sales stagnated on the month and held steady at 1.6% on the year, rather than accelerating to 1.8% as expected. This suggested weak inflationary pressures, keeping the onus on the European Central Bank (ECB) to provide additional monetary stimulus.
Several more PMIs from the Eurozone and individual member states are set for release today, including the Eurozone retail PMI for July.
US Dollar
A strong US ADP Employment Change figure for July helped to soften the blow of a worse-than-expected ISM Non-Composite Manufacturing index. Forecast to dip slightly from 172k to 170k, the number of people entering work instead rose on the month to 179k. Conversely, the ISM Composite disappointed forecasts, weakening from 56.5 to 55.5, below the forecast level of 55.9. Markets were hoping the ADP figure was indicating that Friday’s Non-Farm Payroll report would deliver a strong result. Also, with markets having completely taken the chance of a US rate hike off the table this year, the ISM was unable to particularly harm expectations of monetary tightening. Instead, investors reflected upon the fact that the score of 55.5 still represents strong economic growth.
Today will see the latest update for the US initial and continuing jobless claims figures, both of which are expected to tick marginally lower on the previous month.
Canadian Dollar
Crude oil fluctuated around US$40 per barrel on Wednesday, suggesting that tumbling oil prices might have finally met with support. This strengthened the Canadian Dollar, although mixed domestic news could change the outlook of investors. According to economists, the housing sector is propping up the economy as the oil market weakens. While this suggests that Canada has some protection from crude volatility, it also highlights that the country’s economic prosperity hangs upon one sector; a sector which is already considered overcooked in some parts of the country.
There is no Canadian data due for release today, but with important unemployment figures coming on Friday, the ‘Loonie’ may find itself muted or weakening in anticipation of the reports.
New Zealand Dollar
The strong US Dollar, falling precious metal prices and weak domestic wage growth kept the New Zealand Dollar bearish yesterday. Average earnings were sluggish, with private wages excluding overtime growth staying at 0.4% in the second quarter, rather than accelerating to 0.5%. Average hourly earnings during the same period accelerated from 0.3% to 0.8%, just shy of the 0.9% forecast. This is only going to exacerbate worker dissatisfaction with pay levels; unions are already reporting that workers are prepared to take strike action to secure better pay.
There is no New Zealand data set for release today, leaving the New Zealand Dollar vulnerable to volatility in the commodity markets.
Data Released
August 4th 11.30 AUD Retail Sales Ex Inflation(QoQ) (2Q)
August 4th 18.10 EUR Markit Eurozone Retail PMI (JUL)
August 4th 21.00 GBP Bank of England Rate Decision (AUG 4)
August 4th 21.00 GBP BOE Asset Purchase Target (AUG)
August 4th 21.00 GBP Bank of England Inflation Report
August 4th 22.30 USD Initial Jobless Claims (JUL 30)
August 4th 22.30 USD Continuing Claims (JUL 23)