Australian Dollar
The Australian Dollar was largely on the decline yesterday, despite some positive domestic developments. The Reserve Bank of Australia (RBA) held interest rates at 1.5% but, although the policy statement offered a broadly positive view of the Australian economy, there was nothing to suggest policymakers wouldn’t move to cut rates again should conditions show signs of worsening. On a data front, the monthly rate of building approvals declined by a much smaller amount than expected, while more-than-doubling to 10.1% on the year. Commodity price indices rose, suggesting an improved outlook for Australia’s exporters. US Dollar strength kept the ‘Aussie’ weak, however.
If the upcoming AiG performance of service index for September should climb back towards growth, the Australian Dollar could receive a boost today. With the index already firmly in contraction with a score of 45, any further weakening of the index is likely to significantly undermine the ‘Aussie’.
Sterling
Pound Sterling’s downtrend continued yesterday, with GBP/EUR striking a three year low and GBP/USD tumbling to a 31-year low. AUD/GBP was able to make strong gains despite weakness elsewhere. The Pound rout carried over from Monday, with investors still perturbed by the time period for Article 50 and suggestions that the UK seemed to be on its way out of the single market completely. Even a surprise rise into growth territory for the construction PMI failed to particularly support the Pound, although towards the end of the session losses were slowed by the latest World Economic Outlook. The International Monetary Fund’s (IMF) latest report suggested the UK was set to be the fastest growing economy in the G7 this year.
The UK services PMI could provide some support for the battered Pound if it follows the pattern of the week’s manufacturing and construction reports and strengthens against forecasts.
Euro
Deutsche Bank fears continued to weigh on the Euro, with investors now convinced that a rumoured deal to reduce the fine faced by Germany’s biggest lender had been completely unfounded. Markets had been doubting the suggestion that the US Department of Justice (DoJ) had reduced the sum even before the weekend, but after several days without news investors felt that their worst fears had been confirmed. There was little domestic data, although a continued decline in the producer price indices suggested inflationary pressure remained slack in the Eurozone.
Eurozone retail sales figures are expected to show that transaction growth weakened on the month.
US Dollar
The US Dollar remained buoyed by the recent ISM manufacturing index performance, with Fed rate hike bets for December remaining strong, even though odds did edge back later in the session. The latest report from the IMF suggested that the US economy would now grow by 1.6% in 2016 against earlier projections for growth of 2.2%. Sky’s Ed Conway suggested the downwards revision might be the sharpest single negative adjustment to US growth forecasts since 2008. This could weigh on the US Dollar going forwards, as it may undermine the confidence hawkish members of the Federal Reserve have in the US economy, while encouraging their more dovish peers to stick to their current view that interest rates should be kept low.
September’s ADP employment change figure will be influential tomorrow; while historically there has been little correlation between this and the hugely-important non-farm payrolls figure, markets tend to view the ADP report as being indicative of the NFP. A strong rise in employment change will therefore be interpreted as meaning that the NFP will rise, significantly boosting the US Dollar.
Canadian Dollar
The Canadian Dollar wobbled yesterday, although the ‘Loonie’ reversed its downtrend in the second half of the day’s trading session. The initial slide had been triggered by news that Iranian oil sales had recovered to pre-sanction levels, somewhat taking the shine off the recent announcement of a production-cut agreement by oil cartel OPEC. Crude oil edged back, but later recovered, bringing the Canadian Dollar with it, as the US Dollar trimmed gains.
The Canadian International Merchandise Trade figures for August are due out today, with a marginal reduction of the trade deficit forecast.
New Zealand Dollar
The latest Global Dairy Trade auction disappointed, with the average winning price for a metric tonne of dairy goods weakening -3% to US$2,880. Although this is disappointing, the damage was marginally contained by a look at the bigger picture, which showed only three out of the past twelve events had yielded negative movement for dairy prices.
The only data available for New Zealand today is the ANZ commodity price index for September, which currently stands at 3.2%.
Data Released
October 5th 09.30 AUD AiG Performance of Service Index (SEP)
October 5th 11.00 NZD ANZ Commodity Price (SEP)
October 5th 19.30 GBP Markit/CIPS UK Services PMI (SEP) 52.2
October 5th 20.00 EUR Eurozone Retail Sales (YoY) (AUG) 1.5%
October 5th 23.15 USD ADP Employment Change (SEP) 165k
October 5th 23.30 CAD International Merchandise Trade (Canadian dollar) (AUG) -2.45b