Australian Dollar
Confidence in the Australian economy was boosted by a stronger-than-expected second quarter Wage Cost Index and solid improvement in the Westpac Leading Index for July. This seemed to point towards robust domestic health, something affirmed by Moody’s decision to affirm the country’s AAA credit rating. However, the ‘Aussie’ was unable to particularly capitalise on these positive signs thanks to increased market speculation over the timing of the next Federal Reserve interest rate hike. With commodity prices back under pressure this saw the antipodean currency weakening throughout Wednesday.
There could be some support for the Australian Dollar later today if the latest labour market report indicates a greater tightening of conditions, given the Reserve Bank of Australia’s (RBA) recent emphasis on the data.
Sterling
Investors remained in a bullish mood towards the Pound despite persistent concerns over the detrimental impact of the Brexit vote on the UK economy. This latest rally was prompted by a strong upside surprise in the July Claimant Count, which showed that the number of those claiming unemployment benefits had fallen by 8,600 in the wake of the referendum. As wage growth was also indicated to have strengthened in the three months to June, Sterling was boosted against its rivals, although it has struggled to hold onto all of its initial gains.
UK Retail Sales are expected to point towards some post-Brexit weakness this afternoon, with forecasts anticipating a dip from 3.9% to 3.8% on the year in July.
Euro
It was another day of limited motivation for the single currency, although the lack of domestic data failed to particularly weigh on the Euro. Markets remain optimistic about the outlook of the currency union, with this week’s ZEW Economic Sentiment Survey results continuing to provide a boost in demand. The more limited appetite for higher-yielding currencies also shored up the Euro, particularly as investors do not anticipate any further easing from the European Central Bank (ECB) in the near future.
The reaction to the finalised Eurozone Consumer Price Index for July could be limited, although closer attention will be paid to the latest ECB meeting minutes later tonight.
US Dollar
Despite weak US inflation data, the odds of an imminent Federal Reserve interest rate hike have been revised higher thanks to the hawkishness of policymakers. Both the New York and Atlanta Fed Presidents noted their belief that rates could well be raised before the end of the year. This confident assessment encouraged investors to pile back into the US Dollar, even though doubts remain over the robustness of the world’s largest economy.
Tonight’s Philadelphia Fed Manufacturing Index for August could offer further encouragement to the ‘Greenback’, with a stronger showing likely to diminish worries over the health of the manufacturing sector.
Canadian Dollar
With Canadian data releases limited until the end of the week the ‘Loonie’ remained primarily under the influence of oil prices and general market sentiment. While the bearish mood weighed on the Canadian Dollar it nevertheless fared better than its commodity-correlated rivals, in large part thanks to the optimism surrounding oil. Brent crude broke back above the US$49 per barrel mark, taking it to its highest level since the beginning of July and shoring up the ‘Loonie’.
Doubts over the chances for OPEC to reach an agreement on tackling the oversupply glut are likely to increasingly drag on the appeal of the Canadian Dollar, however.
New Zealand Dollar
Initially the ‘Kiwi’ reacted positively to the news that the Unemployment Rate had fallen further than forecast in the second quarter, dipping from 5.7% to 5.1%. However, while the signs from the New Zealand labour market were positive, this was overshadowed by the bearish mood of markets in response to the stronger US Dollar. Weaker risk appetite undermined the New Zealand Dollar, reversing some of its recent bullishness.
Even so, the ‘Kiwi’ is unlikely to remain on the back foot for long, particularly if the August ANZ Consumer Confidence Index demonstrates an improvement.
Data Released
August 18th 11:30 AUD Unemployment Rate (JUL) 5.8%
August 18th 11:30 AUD Employment Change (JUL) 10,000
August 18th 18.30 GBP Retail Sales (YoY) (JUL) 3.8%
August 18th 19:00 EUR Eurozone Consumer Price Index (YoY) (JUL F) 0.2%
August 18th 22:30 USD Philadelphia Fed Manufacturing Index (AUG) 2