Australian Dollar
The Australian Dollar rebounded after an earlier fall sparked by disappointing data. To begin with the AiG Performance of Construction Index for August slumped into contraction territory, declining from 51.6 to 46.6. Later, second quarter GDP figures offered a mixed picture. Quarter-on-quarter (QoQ) expansion slowed further-than-expected to 0.5%, while year-on-year (YoY) growth clocked in at 3.3% as predicted. First quarter figures were revised lower, however, with monthly and yearly GDP both down ten basis points to 1% and 3% respectively.
It could be a volatile day for the Australian Dollar today. A run of Chinese trade data could spark ‘Aussie’ movement ahead of introductory remarks by incoming Reserve Bank of Australia (RBA) Governor Philip Lowe. The Australian trade balance will follow later.
Sterling
AUD/GBP exchange rates were able to make sizeable advances yesterday thanks to mixed data from the UK. Recent reports have suggested the UK economy is rebounding strongly from the initial Brexit shock, but figures for July indicated that the downtrend may have been worse than initially thought. Halifax house price growth data showed a greater contraction on the month and a worse slowdown in the last three months than predicted. Also, overall industrial production accelerated by more than forecast, but production in the manufacturing sub-sector dropped considerably, falling -0.9% on the month and slowing to 0.8% on the year.
The BRC shop price index and the RICS house price balance are scheduled for release today.
Euro
Yet more below-forecast data from Germany shook the Euro yesterday, keeping the common currency soft as the outlook for the Eurozone’s ‘powerhouse’ economy softened. German industrial production figures have severely disappointed forecasts, unexpectedly dropping far into contraction. On the month, production in July contracted -1.5%, instead of posting the anticipated 0.1% growth after the 1.1% expansion of the previous month. Yearly production declined 1.2%, instead of weakening from 0.9% to 0.2% as forecast. The approach of today’s European Central Bank (ECB) monetary policy decision was also weighing on the common currency, keeping the Euro in negative territory almost across the board.
While the ECB is not expected to change interest rates at today’s policy meeting, markets believe that the Governing Council could make some adjustments to the quantitative easing programme and signal a willingness to act further.
US Dollar
With little domestic data and the hangover from the poor ISM non-manufacturing composite index still present, the US Dollar remained soft yesterday. The weak showing was the final nail in the coffin for market hopes of an interest rate hike in 2016. Fed Funds futures show just a 15% chance of an interest rate hike in the upcoming meeting this month, with the odds of policy changes in December dipping below 50%. February currently looks like the ‘live’ month in terms of monetary tightening, although only if US data decides to play ball.
US initial and continuing jobless claims figures are set for release later today.
Canadian Dollar
The Canadian Dollar remained mixed yesterday after the Bank of Canada held interest rates at 0.50%. Crude oil had rallied earlier in the day, but gains had weakened significantly towards the end of the session. The rise was motivated by comments from the Iranian oil minister, who said that Iran would be willing to cooperate with efforts to curb volatility in the oil markets. While this suggests a production freeze – something to which the country has been staunchly opposed since output sanctions were lifted earlier this year – previous suggestions of doing this have all fallen flat.
Low impact housing prices, capacity utilisation and building permits data is set for release today, although these reports could be overlooked if market reaction to the Bank of Canada has yet to run out of momentum.
New Zealand Dollar
With the US Dollar in a weakened state, the Australian Dollar softened by mixed GDP data and investors cautious over the Canadian Dollar ahead of the BOC meeting, the New Zealand Dollar was the risk asset of choice for many. The ‘Kiwi’ trended bullishly, helped higher by positive manufacturing data. The manufacturing activity volume for the second quarter grew 2.8% after the previous -0.7% decline, while the manufacturing activity index climbed 2.2% after a -2% fall in the first quarter. Both the first quarter declines were retrospectively revised lower as well.
There is no New Zealand data on the calendar today, although the Chinese data could have a strong impact upon the ‘Kiwi’.
Data Released
September 8th 09.01 GBP RICS House Price Balance (AUG) 2%
September 8th 11.30 AUD Trade Balance (Australian dollar) (JUL)
September 8th 21.45 EUR European Central Bank Rate Decision (SEP 8) 0.00%
September 8th 22.30 USD Initial Jobless Claims (SEP 3) 265k
September 8th 22.30 CAD Building Permits (MoM) (JUL 2.5%