Australian Dollar
While Australian home loans were found to have contracted once again in March the ‘Aussie’ remained on an uptrend across the board. The Australian Dollar instead benefitted from a wider improvement in market risk appetite, spurred by China’s announced ‘Belt and Road’ initiative. News of this substantial infrastructure project prompted a fresh rally in commodity prices, implying greater demand in the coming months.
The ‘Aussie’ may struggle to hold onto its gains if the Reserve Bank of Australia’s (RBA) May meeting minutes sound another dovish note, however.
Sterling
Demand for the Pound remained rather limited at the start of the week, with the discouraging Bank of England (BoE) policy meeting continuing to weigh on the minds of investors. With nothing in the way of fresh domestic data available on Monday, Sterling struggled to find any traction against its rivals. Anticipation for the latest UK consumer price index report also weighed on GBP exchange rates as markets awaited an update on the pace of domestic inflation.
An upside surprise from April’s headline CPI could encourage a Pound rally, as it would put increased pressure on the BoE to consider adopting a hawkish outlook sooner rather than later.
Euro
Confidence in the future of the Eurozone was boosted by news that German Chancellor Angela Merkel’s CDU party had beaten out the Social Democrats in a state election. This encouraged hopes that Merkel will secure a fourth term, suggesting that another populist upset is not in store. Coupled with the swearing in of new French president Emmanuel Macron and his appointment of a centre-right Prime Minister, this gave investors fresh reason to buy into the Euro.
Forecasts point towards a slowing in the Italian first quarter gross domestic product, which could put the single currency back on a downtrend this evening.
US Dollar
Disappointment greeted May’s Empire manufacturing survey, which recorded its first negative result since October. This added to recent signs of slowing in the US economy, applying downside pressure to the US Dollar. With markets in a risk positive mood the appeal of the safe-haven ‘Greenback’ was limited, despite the high pricing for a June interest rate hike from the Federal Reserve. While the NAHB housing market index bettered expectations, USD exchange rates remained on a bearish footing last night.
Should April’s housing starts and building permits figures add to a more positive impression of the US housing market, the US Dollar could rally tonight.
Canadian Dollar
Some measure of confidence returned to the ‘Loonie’ at the start of the week, with hopes mounting that an extension to the OPEC production agreement will materialise. With both Russia and Saudi Arabia voicing support for extending the agreement past its original June end date the price of oil picked up once again. With Brent crude breaking back above the US$52 per barrel mark, the appeal of the commodity-correlated Canadian Dollar improved, although its strength remains relatively fragile.
If US shale production continues filling the gap left by the OPEC cuts, however, the prospect of an extended global oversupply glut is likely to dent the Canadian Dollar.
New Zealand Dollar
Although New Zealand’s April services PMI showed a sharp slowdown in sector growth, this was not enough to significantly dent the appeal of the New Zealand Dollar. Investors were instead encouraged by the news that retail sales had surged 1.5% in the first quarter of 2017, indicating that consumers remain in a positive mood. Confidence in the ‘Kiwi’ was also boosted by the general mood of risk appetite.
Tonight’s GlobalDairyTrade auction could put pressure on the New Zealand Dollar, however, if dairy prices fail to sustain their recent improvement.
Data Released
May 16th 11:30 AUD Reserve Bank of Australia Meeting Minutes
May 16th 18:00 EUR Italian Gross Domestic Product (YoY) (1Q P) 0.8%
May 16th 18:30 GBP Consumer Price Index (YoY) (APR) 2.6%
May 16th 19:00 EUR Eurozone Gross Domestic Product (YoY) (1Q P) 1.7%
May 16th 22:30 USD Housing Starts (MoM) (APR) 3.7%
May 16th 22:30 USD Building Permits (MoM) (APR) 0.2%