Australian Dollar
Policymakers maintained a cautious outlook at the Reserve Bank of Australia (RBA) meeting, prompting the ‘Aussie’ to trend lower across the board. While the central bank is not likely to return to an easing bias, given worries surrounding the overheating housing market, the prospect of an interest rate hike remains distant. This undermined confidence in the Australian Dollar, even though February’s trade surplus was found to have widened further than forecast. As the underlying fundamentals of the domestic economy remain mixed, the antipodean currency was unable to shake off the general mood of risk aversion.
The appeal of the ‘Aussie’ could pick up, however, if this morning’s services PMI shows that the sector returned to a state of expansion in March.
Sterling
The mood towards the Pound did not improve in the wake of the UK construction PMI, which also surprised to the downside. This weaker showing was not seen to bode well for tonight’s services PMI, suggesting that the domestic economy started to slow at the end of the first quarter. However, given the limited economic influence of the construction sector the Pound was able to capitalise on the weakness of its higher-yielding rivals.
If growth in the service sector is found to have slowed GBP exchange rates are likely to slump sharply, with Brexit-based uncertainty set to weigh on the sector further in the coming months.
Euro
Demand for the Euro weakened in anticipation of the second debate of the French presidential election. Even though the polls continue to point towards National Front leader Marine Le Pen being defeated markets remain nervous about the populist candidate. Worries over Greece were also on the rise once again, with another anti-austerity protest taking to the streets of Athens on Tuesday. While the situation is still a long way from devolving into a fresh Eurozone crisis a lack of progress on bailout talks continues to weigh on the outlook of the Hellenic nation and the Euro by extension.
No surprises are expected from the finalised raft of Eurozone services and composite PMIs, limiting any potential volatility for the single currency.
US Dollar
In a positive sign for the world’s largest economy the US trade deficit was found to have narrowed further than forecast in February. As imports dipped -1.8% on the month the appeal of the US Dollar strengthened. This positive showing helped to boost the ‘Greenback’ even after Federal Reserve policymakers maintained a more cautious outlook on monetary policy. Political uncertainty nevertheless remains, with investors likely to turn increasingly jittery ahead of Chinese President Xi Jinping meeting Donald Trump.
If the ISM non-manufacturing composite index proves weak the US Dollar is likely to trend lower overnight.
Canadian Dollar
Oil prices trended higher overnight in response to data suggesting that the amount of crude oil being stored or transported in supertankers has fallen by 16% since the start of the year. This dip suggests that the OPEC production cut has been reducing the global oversupply glut, even as US output increases. This offered fresh support to the Canadian Dollar, although it struggled to find any particular contraction against its non-commodity-correlated rivals.
If the latest US crude oil inventories data points towards a further increase in output, though, the ‘Loonie’ could return to a softer footing.
New Zealand Dollar
Another modest uptick in dairy prices was not enough to improve the mood towards the ‘Kiwi’, even though demand for the commodity continued to recover. The New Zealand Dollar struggled as a result of investors piling back into safe-haven assets, leaving little support for risk-sensitive currencies. With risk aversion likely to dominate the outlook of markets this week the antipodean currency seems set to remain on the back foot.
A stronger showing from the ANZ commodity price index could offer the New Zealand Dollar some degree of support today.
Data Released
April 5th 09:30 AUD Services PMI (MAR)
April 5th 11:00 NZD ANZ Commodity Price Index (MAR)
April 5th 18:30 GBP Services PMI (MAR) 53.5
April 6th 00:00 USD ISM Non-Manufacturing Composite (MAR) 57