Australian Dollar
As expected, the Reserve Bank of Australia (RBA) left interest rates unchanged yet again. Governor Philip Lowe opted for a neutral but relatively upbeat tone in his accompanying statement, suggesting that the central bank is likely to remain on hold for some time yet. Even so, the ‘Aussie’ came under pressure in the wake of the meeting as concerns over the housing market and the health of the wider economy remain.
If April’s services PMI shows a further loss of momentum within the sector then the Australian Dollar can be expected to trend lower across the board.
Sterling
In a significant upside surprise the UK manufacturing PMI leapt from 54.2 to 57.3 on the month in April. This marked improvement encouraged investors to pile back into the Pound, suggesting that the domestic economy started the second quarter on a stronger footing. Even so, Sterling struggled to capitalise on this bullish result thanks to the latest Brexit developments. With fears mounting that negotiations could stall even before the parties come to the table, some of the Pound’s initial optimism faded.
A similarly positive construction PMI could keep Sterling on a bullish trend today, even though markets are more likely to focus on Thursday’s services PMI.
Euro
The single currency saw a relief rally during Tuesday’s European session after it emerged that Greece had reached a deal with its creditors. Although the Hellenic nation had to agree to fresh pension cuts and labour market reforms, this opened the way for the payment of the next tranche of bailout funds. With the threat of a default now rather more limited the appeal of the Euro improved, particularly as Eurozone unemployment held steady at an eight-year low.
If the first quarter Eurozone gross domestic product points towards an increased level of economic growth then the Euro could extend its gains further.
US Dollar
Confidence in the ‘Greenback’ remained somewhat limited after a disappointing ISM manufacturing report, with the headline index having slowed from 57.2 to 54.8. This furthered the impression that the world’s largest economy is experiencing some weakness at this juncture, even though other underlying fundamentals remain positive. Disappointing numbers from the automobile industry added to the bearishness of the US Dollar, seeming to increase the likelihood of the Federal Reserve holding steady on monetary policy in the near term.
Demand for USD exchange rates is likely to remain muted ahead of Thursday’s Fed policy decision, with the tone of policymakers set to drive market movement.
Canadian Dollar
An uptick in the latest Canadian manufacturing PMI helped to bolster demand for the ‘Loonie’ during the early week. With the sector continuing to demonstrate strong growth worries over the policy outlook of the Bank of Canada (BOC) eased, at least temporarily. An improvement in oil prices also offered support to the Canadian Dollar, buoyed by hopes that OPEC will extend the duration of its production cuts to alleviate the global oversupply glut.
However, if tonight’s US crude oil inventories data shows an increase on the week this could leave the ‘Loonie’ on a softer footing.
New Zealand Dollar
Another strong GlobalDairyTrade auction result offered support to the ‘Kiwi’ overnight, boding well for the domestic dairy industry. While market risk appetite was a little limited, the New Zealand Dollar pushed higher against many of its rivals. Following significant weakness in recent weeks the appeal of the softened ‘Kiwi’ has improved, encouraging profit-seeking traders.
Forecasts point towards a dip in the first quarter New Zealand unemployment rate, which could offer the antipodean currency a stronger rallying point.
Data Released
May 3rd 08:45 NZD Unemployment Rate (1Q) 5.1%
May 3rd 09:30 AUD Services PMI (APR)
May 3rd 18:30 GBP Construction PMI (APR) 52
May 3rd 19:00 EUR Eurozone Gross Domestic Product (QoQ) (1Q) 0.5%
May 4th 04:00 USD Federal Open Market Committee Policy Decision 1.0%