Australian Dollar
In spite of expectations, the August meeting minutes of the Reserve Bank of Australia (RBA) were not seen to be overly dovish. Markets were encouraged by the possibility that the RBA could be less inclined to cut interest rates again in the near future, with hopes that the bank’s inflation target could be reconsidered under a new Governor. The bullish mood of the ‘Aussie’ was also boosted by a strong improvement in the ANZ Roy Morgan Weekly Consumer Confidence Index, which pointed towards a more upbeat domestic mood. Even so, the antipodean currency struggled to maintain its gains throughout the European session. However, with today’s Westpac Leading Index and second quarter Wage Cost Index expected to evidence softness within the Australian economy this more optimistic outlook could prove short-lived.
Sterling
The first major piece of post-Brexit UK data prompted the Pound to strengthen, with markets reacting positively to the news that the baseline Consumer Price Index had ticked up from 0.5% to 0.6% in July. Although there are concerns that the Bank of England’s (BoE) 2% inflation target is likely to be overshot early next year, this did not weigh on the minds of investors. As a result Sterling recovered some of its earlier losses, even if the general outlook of the currency remains biased to the downside. This evening’s raft of UK employment data looks set to trigger further volatility for the Pound, with stronger wage growth likely to ease worries at least somewhat.
Euro
A boost for the Euro came in the form of the Eurozone ZEW Economic Sentiment Survey for August, which rebounded strongly from -14.7 to 4.6. This indicated that the currency union had been quick to shrug off the impact of the UK’s vote to Brexit, improving the appeal of the single currency. Confidence was also encouraged by the news that the Eurozone trade surplus had widened further than forecast in June, rising from 24.6 billion to 29.2 billion.
It will be a rather quieter day for Eurozone ecostats, with the Euro likely to rely primarily on wider market sentiment and developments in the US Dollar for movement.
US Dollar
Markets were not impressed to see that the US inflation rate had weakened further than expected in July, falling from 1.0% to 0.8% on the year. As a result the odds of the Federal Reserve opting to raise interest rates in the near future were seen to dim, with the world’s largest economy proving itself to be in less robust health than might be hoped. Although industrial and manufacturing production were shown to have strengthened on the month, this was not enough to eclipse the disappointment of the inflation data, leaving the US Dollar to slump further across the board.
The release of the July meeting minutes of the Federal Open Market Committee (FOMC) could encourage greater demand for the ‘Greenback’, although less hawkish commentary would strongly benefit the AUD/USD exchange rate.
Canadian Dollar
A stronger recovery in Canadian Manufacturing Shipments was not enough to keep the ‘Loonie’ on an uptrend on Tuesday, with investors largely dismissive of the measure. Brent crude remained on a bullish run, meanwhile, continuing to trend in the region of a one-month high. There are concerns that Iran may not join the OPEC discussions in September, something that could see the price of oil return to a weaker footing.
Ahead of Friday’s domestic inflation data the Canadian Dollar is expected to lack particular support, particularly if the latest US crude inventories offer cause for concern.
New Zealand Dollar
Speculation over the outlook of the Reserve Bank of New Zealand (RBNZ) has failed to weigh on the buoyant ‘Kiwi’ so far this week. The appeal of the New Zealand Dollar remains heightened by the weakness of the US Dollar and its stronger returns over other higher-risk currencies. Even so, the bullishness of the ‘Kiwi’ may encourage the RBNZ to cut interest rates more aggressively in the near future.
This morning’s New Zealand employment data is expected to offer further encouragement to the ‘Kiwi’, with a sharp decline in joblessness expected.
Data Released
August 17th 08:45 NZD Unemployment Rate (2Q) 5.2%
August 17th 11:30 AUD Wage Cost Index (YoY) (2Q) 2.0%
August 17th 18.30 GBP Average Weekly Earnings (3M/YoY) (JUN) 2.3%
August 18th 04.00 USD Federal Open Market Committee Meeting Minutes