Australian Dollar
The Reserve Bank of Australia (RBA) left interest rates on hold during yesterday’s monetary policy meeting. This had been expected by the markets, but changes to the wording of the accompanying statement compared to previous iterations suggested the RBA was becoming more optimistic. Positive comments on the labour market and the economy have lowered the odds that the RBA will cut interest rates at the next policy meeting, allowing the Australian Dollar to make impressive gains.
The Australian Dollar may remain bullish today if the second-quarter GDP figures print in line with forecasts; while a slowdown from 1.1% to 0.6% on the quarter is predicted, year-on-year GDP is predicted to accelerate from 3.1% to 3.3%.
Sterling
The only notable data from the UK yesterday was the British Retail Consortium (BRC) sales figure for August. Sales may have posted an unexpected decline of -0.9% on the year last month, but the fact the weakness was blamed on the Olympics and not Brexit prevented GBP weakening. Despite the Australian Dollar’s bullishness, Pound Sterling was able to largely resist gains, recovering to within opening levels by the middle of the afternoon.
Today looks set to be a busy day for Pound Sterling trading, with plenty of volatility promised from the day’s data. The strength of the UK economy following the referendum will be made clearer after the release of industrial and manufacturing production statistics for July. Considering manufacturing PMI crashed after the vote, there is a chance these figures could significantly disappoint forecasts of accelerated growth, but now that the latest PMIs have recovered again, markets may not be overly perturbed. Meanwhile, several Bank of England (BoE) policymakers are due to speak, making it likely the markets will receive a least a few hints on the likelihood of further policy changes at the end of the year.
Euro
With the European Central Bank’s (ECB) latest policy meeting only days away, the Euro remained soft yesterday, despite largely positive data. German factory orders declined at a faster-than-forecast pace, while government expenditure and household consumption growth slowed further-than-anticipated. But retail PMIs all showed a strong improvement, with an average rise of 2 points for the German, French and Italian retail indices putting the Eurozone measure back into growth territory with a score of 51. Finalised Eurozone GDP figures printed in line with previous estimates.
German industrial production figures for July could add further weight to fears that the Eurozone’s powerhouse economy is starting to drag on growth, with year-on-year production forecast to weaken from 0.5% to 0.2%.
US Dollar
The US Dollar weakened in the run up to yesterday’s ISM non-manufacturing composite index, then weakened further once the data had been released. Forecast to decline -0.5 points, the index instead dropped from 55.5 to 51.4 in August. Last week’s ISM manufacturing index registered a similarly bad performance, with a -3.2 point drop taking it into contraction territory. Combined, these results are likely to severely weaken bets that the Federal Reserve will hike interest rates in December, meaning after suggesting four rate hikes would take place in 2016 the Federal Open Market Committee (FOMC) would have delivered none.
With a speech on outlook from the Federal Reserve’s John Williams on the calendar, it is likely the US Dollar could see some movement today as traders adjust their positions on altered hopes of monetary tightening.
Canadian Dollar
The Canadian Dollar weakened yesterday as some of the exuberance in the oil markets wore off. Markets were initially excited by Monday’s news of a Russian-Saudi pact to help curb oil market volatility. By yesterday investors were starting to realise that their hopes of a production freeze to ease the supply glut were perhaps jumping the gun. As a result WTI pared recent gains by around -1.2% while Brent dropped back around -2.7%, weakening the Canadian Dollar.
There is no Canadian data on the calendar today.
New Zealand Dollar
Several factors combined to send the New Zealand Dollar bullish yesterday. The weakening US Dollar created the perfect conditions for ‘Kiwi’ appreciation, while recovering haulage activity indicated an uptick in economic activity in August. Dairy prices rose again, with the latest GlobalDairyTrade auction yielding a 7.7% increase in the price index. Concentrated milk powder, New Zealand’s main export, saw strong growth, with skim milk powder increasing 10% and whole milk powder climbing 3.7%.
Only low impact manufacturing activity volume and manufacturing activity figures for the second quarter appear on the calendar for New Zealand today.
Data Released
September 7th 08.45 NZD Manufacturing Activity (2Q)
September 7th 11.15 USD Fed’s Williams Speaks on Outlook in Reno, Nevada
September 7th 11.30 AUD Gross Domestic Product (YoY) (2Q) 3.3%
September 7th 16.00 EUR German Industrial Production n.s.a. and w.d.a. (YoY) (JUL) 0.2%
September 7th 23.15 GBP BOE’s Carney, Cunliffe, Forbes, McCafferty Speak in London