Australian Dollar
The Australian Dollar was mixed yesterday, advancing versus the Canadian Dollar, New Zealand Dollar and US Dollar, but weakening against other majors. An almost-empty data calendar kept many currencies on an uncertain footing, although a domestic study on the impact of inequality on Australia’s economy created some headwinds for the ‘Aussie’. According to the findings by Labor think tank the Chifley Research Centre, over the next five years inequality could reduce GDP by -AU$13.1 billion, making GDP -0.7% lower in 2019-20 than it would be otherwise.
The ANZ Roy Morgan Weekly Consumer Confidence Index for last week could generate some movement for the Australian Dollar today.
Sterling
The Australian Dollar was pushed lower by Pound Sterling yesterday, which was recovering from Friday’s weakness. Government borrowing figures before the weekend failed to register as large a surplus as had been expected, giving the AUD/GBP exchange rate a chance to reverse recent losses. With the week opening to find Sterling still undervalued, investors returned to the British asset and the resulting demand undermined ‘Aussie’ strength, despite no domestic ecostats to fuel gains. However, research from EY suggested that only a fifth of City financial firms are expecting a negative impact upon their businesses from the referendum, cheering the markets.
Data from the Confederation of British Industry (CBI) today is unlikely to prove Pound-supportive
Euro
The Euro performed well for much of Monday, with markets awaiting any news from the scheduled meeting between Francois Hollande, Angela Merkel and Matteo Renzi. The three heads of state were due to meet in order to discuss the UK’s decision to leave the European Union. The meeting was the first in a busy schedule of talks over the coming weeks between various EU leaders as they attempt to establish a negotiating position in preparation of the UK triggering Article 50 of the Lisbon Treaty, which will formally begin the process of withdrawing from the European Union.
There are a slew of Markit PMIs set for release today, almost all of which are predicted to show a weakening in economic activity across the Eurozone. The minor extent of the expected slowdown may keep the data from having a particularly marked effect on the Euro, although a worse-than-anticipated result could cause the common currency to tumble. An above forecast result will see the Euro ride higher on trader relief that the currency bloc continues to resist the fallout from the UK’s Brexit decision.
US Dollar
As a new week of trading began, Markets were firmly focussed on Friday’s Jackson Hole Economic Policy Symposium, at which it is expected Janet Yellen will signal that an interest rate hike is on the horizon. As a result, the US Dollar firmed, helped higher by comments released over the weekend from Stanley Fischer. The Federal Reserve Vice-President claimed that the US economy was close to the Fed’s targets.
The Markit US manufacturing PMI for August is set for release today and is predicted to weaken marginally. The Markit measure is not usually considered as influential as the more high-profile ISM manufacturing index, but markets are likely to show an exaggerated reaction to the smallest of indicators of economic health or weakness in the run-up to Janet Yellen’s speech.
Canadian Dollar
Various headwinds for the oil markets kept the Canadian Dollar on a bearish trend yesterday. Firstly, the strength of the US Dollar pushed commodity prices lower, with crude oil weakening thanks to the ‘Greenback’s increased purchasing power. Also souring appetite for oil were comments from Morgan Stanley, suggesting that it was unlikely the Organization of the Petroleum Exporting Countries (OPEC) would agree to freeze production in its next meeting. Markets had been hoping for a new production ceiling to be established after comments from several of the smaller OPEC members indicated a willingness to do so. However, Morgan Stanley said there were ‘too many headwinds and logistical challenges to a meaningful deal.’
The only Canadian data remaining for this week is the CFIB Business Barometer for August on Thursday, which is unlikely to generate much movement for the Canadian Dollar.
New Zealand Dollar
Despite US Dollar strength, the New Zealand Dollar managed to remain strong overall yesterday, ignoring falling commodity prices. New Zealand government bond yields rose; market expectations of a rate hike suggest that the Fed will be more optimistic about the global economy, negating the need to store capital in safe-haven assets. The only New Zealand data of the week will be Wednesday’s trade balance figures. Exports are expected to have been smaller in July than in June, with the trade balance forecast to fall from a 127 million surplus to a deficit of -325 million.
Data Released
August 23rd 09.30 AUD ANZ Roy Morgan Weekly Consumer Confidence Index (AUG 21)
August 23rd 18.00 EUR Markit Eurozone Composite PMI (AUG P) 53.1
August 23rd 20.00 GBP CBI Trends Total Orders (AUG) -10
August 23rd 23.45 USD Markit US Manufacturing PMI (AUG P) 52.7
August 24th 08.45 NZD Trade Balance (New Zealand dollars) (JUL) -325m
August 25th CAD CFIB Business Barometer (AUG)