Australian Dollar
Despite earlier market risk aversion the appeal of the Australian Dollar improved markedly on Thursday. Investors were encouraged to find that October’s Services PMI edged back into growth territory, suggesting that the domestic economy is in more robust shape. This impression was shored up by the fact that September’s trade deficit narrowed by more than forecast from -2 billion to -1.2 billion. Altogether this increased the likelihood of the Reserve Bank of Australia (RBA) maintaining a neutral outlook on monetary policy, a prospect that is ‘Aussie’ positive.
Even so, the Australian Dollar could see volatility this morning in response to the latest RBA statement on monetary policy.
Sterling
The Pound returned to bullish form overnight, boosted by a combination of positive data and less dovish Bank of England (BoE) commentary. While the UK Services PMI unexpectedly strengthened on the month, indicating continued economic resilience, markets were also excited by the High Court ruling on Brexit. In a blow to Theresa May’s government, the court ruled that Article 50 cannot be triggered without a parliamentary vote, potentially reducing the odds of a so-called ‘hard brexit’ from the EU. Further support for Sterling came from the BoE’s decision to revise up its growth forecast for 2017, with the central bank looking less likely to cut interest rates in the near future.
However, profit taking and continued Brexit-based uncertainty are expected to erode the Pound’s gains ahead of the weekend.
Euro
Confidence in the single currency remained limited on Thursday, with the Euro struggling to capitalise on the continued softness of the US Dollar. Although the Eurozone unemployment rate was found to have dipped to 10%, in line with forecasts, this failed to bolster the appeal of the common currency. Speculation continues to point towards the European Central Bank (ECB) extending its quantitative easing program in December, reducing investors’ willingness to favour the Euro over higher-yielding rivals.
Reaction to the finalised raft of Eurozone Services PMIs is likely to be limited, although any upward revisions could offer some support to the Euro.
US Dollar
While the Federal Open Market Committee (FOMC) left the door open for a December interest rate hike, this failed to shore up the US Dollar. In large part this was due to continued market unease over the outcome of the US presidential election, with the polls remaining tight. Should Donald Trump emerge victorious then an imminent Fed rate hike is likely to be taken off the table, given the economic uncertainty that would stem from such a result. As a result, political risk has remained the driving force behind the ‘Greenback’, although a sharp slump in the ISM Non-Manufacturing Composite also dented demand.
Tonight’s Non-Farm Payrolls report could offer the US Dollar more of a rallying point, providing that unemployment is shown to have diminished further in October.
Canadian Dollar
Following the large build up in US stockpiles over the last week the price of Brent crude remained on a weaker trend. With the US$50 per barrel mark seeming increasingly distant and hopes of an OPEC production cut fading, the Canadian Dollar has come under renewed pressure. Thus, in spite of market risk appetite picking up, the ‘Loonie’ was unable to make any particular gains against rivals.
Further weakness could be in store for the Canadian Dollar if October’s domestic labour market data shows that the number of employed persons declined markedly.
New Zealand Dollar
Investors piled back into the ‘Kiwi’ yesterday, with the appeal of the higher-yielding currency boosted by the latest positive ecostats from China. Both the October Services and Composite PMIs bettered expectations, furthering hopes that the world’s second largest market is not heading for a hard landing. As a result the New Zealand Dollar was prompted to trend higher across the board, shrugging off the impact of the air of political uncertainty stemming from the US.
With no fresh New Zealand data due for release ahead of the weekend, the ‘Kiwi’ will remain vulnerable to any deterioration in market confidence.
Data Released
November 4th 11:30 AUD RBA Statement on Monetary Policy
November 4th 11:30 AUD Retail Sales (MoM) (SEP) 0.4%
November 4th 23:30 USD Change in Non-Farm Payrolls (OCT) 175,000
November 4th 23:30 CAD Net Change in Employment (OCT) -15,000