Australian Dollar
An initial boost for risk appetite, due to the US markets being closed for Labor Day, quickly wore off, leaving the Australian Dollar weak overall. The outlook for the economy was on shaky ground after the AiG performance of services index registered a -8.9 point drop into contraction territory, clocking in at 45. Credit ratings agency Moody’s offered mixed news. On the one hand, the agency left Australia’s prized AAA rating intact, but noted that the narrow majority of the coalition in parliament could make it tough to pass savings measures and avoid cumbersome national debt in the future. Today’s policy meeting also weighed on the markets, with traders unwilling to adjust their positions so close to a major announcement.
The latest interest rate decision from the Reserve Bank of Australia (RBA) is due this afternoon. While markets expect more easing will be necessary at some point, the RBA has a habit of cutting interest rates after inflation data; no CPI data has been released recently, making a cut unlikely. The accompanying Policy Statement could weaken the ‘Aussie’, however, if it remains dovish in tone.
Sterling
AUD/GBP exchange rates slumped yesterday after the release of the latest UK services PMI. The measure of the UK’s most vital sector repeated the performance of other measures released last week, defying forecasts and advancing firmly into growth territory. The composite index did similarly. The Pound did not strengthen as bullishly as it did after the strong performances from the manufacturing and construction indices as the markets had expected the services PMI would beat forecasts. The forecasts for long-term depreciation for Pound Sterling remained present to limit gains.
There is little from the UK today in the way of data. Tomorrow will be a very different story, with production data to add to the picture of the UK’s economic health post-Brexit and speeches from several Bank of England (BoE) officials to provide clues over future monetary policy direction.
Euro
Disappointing PMI results from Germany weakened the Euro yesterday. The data suggested that the Eurozone’s ‘powerhouse’ economy was beginning to drag on economic growth, with poor PMI scores from Germany dragging the overall Eurozone indices lower despite strong French and Spanish readings. Against forecasts of a hold, the German services and composite PMIs weakened to 51.7 to 53.3 respectively, pulling the Eurozone services to 52.8 and the composite to 52.9. Investor confidence and retail sales improved, but this wasn’t enough to counter the fact that the day’s PMIs had greatly increased the likelihood of further European Central Bank (ECB) stimulus.
The next ECB policy meeting is scheduled for Thursday. Markets aren’t expecting any interest rate adjustments, but opinion is divided over whether or not the Governing Council will deem it necessary to alter the quantitative easing programme.
US Dollar
Due to the national Labor Day holiday, US markets were closed yesterday. The resulting thin trading saw the US Dollar weaken significantly. No data was released and recent comments from a Federal Reserve official were largely ignored. Jeffrey Lacker claimed that interest rates should be ‘significantly higher’ than their current rates, although as he does not vote on monetary policy his words did nothing to alter rate hike bets.
Further US Dollar headwinds could come from Wednesday’s ISM non-manufacturing composite. It is only predicted to weaken by -0.5 points, to a still-strong reading of 55, but the recent ISM manufacturing index was also only expected to soften, but instead dropped into contraction territory.
Canadian Dollar
Canada was celebrating the Labour Day holiday, but the Canadian Dollar managed to make bullish advances due to developments in the oil markets. Russia and Saudi Arabia – the world’s biggest oil producers – announced that they had signed a pact to explore ways to stabilise the oil market. While many are likely to hope that this means commitment to a production freeze, such notions have fallen flat in recent months every time they are vaunted. Regardless, WTI and Brent crude advanced, with gains peaking at 3% during the session.
Canada also has a central bank policy meeting on the calendar this week. Thursday’s Bank of Canada (BOC) meeting is expected to see no changes made to monetary policy. Markets will be more interested in the accompanying statement for an insight into the longer-term outlook for monetary policy.
New Zealand Dollar
The only New Zealand data on the calendar yesterday was the ANZ commodity price index, which showed an acceleration in price growth. This bodes well for inflation; producers pass higher costs on to the consumer. Meanwhile, the Reserve Bank of New Zealand (RBNZ) took action against an overheating housing market by raising the minimum deposit required for homeowners and residential investors to take out a mortgage. While the New Zealand Dollar is currently overvalued, a hot housing market is making it difficult for the RBNZ to cut interest rates and lower its value, thanks to fears of causing a market crash.
The latest dairy auction takes place today and could significantly advance the ‘Kiwi’ should it yield another sizeable price increase.
Data Released
September 6th NZD Dairy Auction Avg. Winning Price MT (SEP 6)
September 6th 14.30 AUD Reserve Bank of Australia Rate Decision (SEP 6) 1.5%
September 7th 00.00 USD ISM Non-Manufacutring Composite (AUG) 55
September 7th 18.30 GBP Manufacturing Production (YoY) (JUL) 1.7%
September 8th 00.00 CAD Bank of Canada Rate Decision (SEP 7) 0.50%
September 8th 21.45 EUR European Central Bank Rate Decision (SEP 8) 0.00%