Australian Dollar
Risk-appetite was soft yesterday, with investors wondering what US President Donald Trump’s tax plans would mean for corporations headquartered in Australia. While the tax plan was extremely light on detail, one of the few solid promises it made was that business taxes would be cut from 35% to 15%, which would take the US from being one of the highest-taxing nations in the world to being one of the lowest.
AMP Chief Economist Shane Oliver warned that this could entice companies to move out of Australia, where the tax rate is currently 30%. ‘Companies [could] simply say we’re going to relocate to the US [and] that will mean less economic activity over time in Australia and of course have an adverse impact on our economy,’ he said.
Private sector credit figures for March could provide the Australian Dollar with some support if they show a rise in business borrowing, as this indicates companies are investing in capital and expansion, which supports job creation.
Sterling
Fears over weakening UK consumer activity cooled yesterday, pushing the AUD/GBP exchange rate down half a per cent. Investors are expecting today’s GDP figures to show that the economy slowed in the first three months of the year, in part because retail sales saw their biggest quarterly drop for seven years. However, the latest data from the Confederation of British Industry (CBI) revealed that British retailers saw sales volumes increase by the biggest amount since September 2015. The balance of sales rocketed from 9 to 38, defying expectations of a weakening to 6.
Euro
The Euro was able to hold onto opening levels versus the Australian Dollar yesterday, even though it was largely weakening elsewhere. The European Central Bank (ECB) left interest rates on hold at its latest monetary policy meeting, as had been expected. However, President Mario Draghi caused the Euro to weaken – as usual – after he commented that, while the Eurozone recovery was solid and the pace of growth would strengthen, risks remained and therefore loose monetary policy was still appropriate.
Eurozone consumer price data will be released later today. Core inflation is expected to rise from 0.7% to 1% year-on-year; only half the ECB’s target rate, but this will nonetheless increase pressure on policymakers to begin tightening monetary policy.
US Dollar
The US Dollar was on mixed form yesterday, notching up minor gains versus the Australian Dollar, as it began to recover from a recent sell-off. Investors were disappointed with the tax plan finally unveiled by Donald Trump; it contained less than 250 words and consisted entirely of one sheet of A4 paper covered in bullet points. Economists claimed it was impossible to model the impact of his reforms upon the economy because of the lack of figures and details. Meanwhile, the day’s data was mixed. The advance goods trade balance showed a smaller-than-expected deficit of -US$68.4 billion, but durable goods orders for March were estimated at 0.7% instead of slowing from 2.3% to 1.3% as predicted.
Gross domestic product figures for the first quarter are set for release today.
Canadian Dollar
The Canadian Dollar was largely strong yesterday. Donald Trump had claimed he would sign an executive order withdrawing the US from the North American Free Trade Agreement (NAFTA), but just a few hours later said that the deal would remain in place for now. This helped support the Canadian Dollar despite a -2% drop in crude oil prices, as investors noted that global oil inventories still remained around record levels. This suggested OPEC would have its work cut out for it if the cartel were to continue trying to curb the global oversupply.
February GDP figures will be released today and could push the Canadian Dollar higher, given that the forecasts are positive.
New Zealand Dollar
Data released on Wednesday continued to undermine the New Zealand Dollar yesterday, with losses heightened by weak global risk-appetite. A combination of record high immigration and a 30-year low in the number of nationals moving overseas meant that net migration in March hit a record 71,932 year-on-year. The swelling population of New Zealand is putting strain on infrastructure and finances, with many wondering how long it can continue before the country is put under severe pressure.
The New Zealand Dollar could receive a boost from today’s March trade figures, which are expected to show a surplus of NZ$370 million.
Data Released
April 28th 08.45 NZD Trade Balance (New Zealand Dollars) (MAR) 370m
April 28th 11.30 AUD Private Sector Credit (YoY) (MAR)
April 28th 18.30 GBP Gross Domestic Product (QoQ) (1Q A) 0.4%
April 28th 19.00 EUR Eurozone Consumer Price Index – Core (YoY) (APR A) 1%
April 28th 22.30 CAD Gross Domestic Product (YoY) (FEB) 2.6%
April 28th 22.30 USD Gross Domestic Product (Annualized) (1Q A) 1.1%