Australian Dollar
While the Reserve Bank of Australia’s (RBA) latest meeting minutes were not particularly hawkish in nature, the mood towards the ‘Aussie’ remained positive on Tuesday. Markets are still confident that the central bank will leave interest rates on hold for the foreseeable future, meaning that the chances of an interest rate cut remain limited. With risk appetite still heightened as a result of the Chinese infrastructure investment news, the Australian Dollar maintained a solid uptrend against many of the majors overnight.
A strong showing from the Westpac consumer confidence index and first quarter wage cost index may offer AUD exchange rates a further boost this morning.
Sterling
April’s headline UK consumer price index proved higher than anticipated, with inflation jumping from 2.3% to 2.7% on the year. While markets had expected an increase in inflationary pressure, this upside surprise failed to boost demand for the Pound. Following the Bank of England’s (BoE) May policy meeting the odds of the Bank turning to a tightening bias in the near future remain severely limited, creating sustained downside pressure on Sterling.
A weaker showing from tonight’s weekly earnings figures could encourage further Pound selling as persistently sluggish wage growth would signal that the consumer spending squeeze is set to worsen.
Euro
Investors were in a positive mood after Emmanuel Macron’s first full day as French president. The Euro strengthened as Macron reaffirmed his commitment to a stronger European Union and a positive relationship with Germany. Data also proved positive for the single currency, with the Eurozone trade surplus having widened markedly from 19.2 billion to 23.1 billion in March. As the domestic economy continues to demonstrate strong growth the Euro has been encouraged to trend higher across the board, despite the dovishness of the European Central Bank (ECB).
While no change is expected from the finalised Eurozone consumer price index report, a reminder of the more muted inflationary outlook of the currency union could dent demand for the Euro.
US Dollar
Reports that Donald Trump revealed classified information to the Russian foreign minister prompted a fresh wave of jitters over the stability of the current US administration. This undermined the appeal of the ‘Greenback’ further, particularly as April’s housing starts and building permits figures proved weaker than forecast. With the US housing market showing fresh signs of weakness the odds of a June interest rate hike from the Federal Reserve were seen to ease slightly.
Thursday’s jobless claims figures could offer USD exchange rates a rallying point, though, if the domestic labour market continues to demonstrate tightness.
Canadian Dollar
Although the International Energy Agency (IEA) noted that OPEC’s production limiting deal may not be enough to bring global crude stockpiles to its targeted levels by the end of 2017, this failed to weigh on the ‘Loonie’. Markets maintained a relatively positive outlook towards the commodity-correlated currency as oil prices held above the US$51 per barrel mark. As the mood towards the safe-haven US Dollar remained muted the appeal of the Canadian Dollar improved.
However, if the latest US inventories figures show a fresh build up in oil stocks the ‘Loonie’ could find itself on the back foot once again.
New Zealand Dollar
Despite the general sense of market risk appetite, the New Zealand Dollar failed to hold onto an uptrend. A lack of fresh domestic data left the ‘Kiwi’ lacking in particular support, even with the softness of the US Dollar. Although the GlobalDairyTrade auction showed a fresh uptick in prices this was not enough to bolster the appeal of the commodity-correlated ‘Kiwi’ at this juncture.
The first quarter producer price index report could put renewed pressure on the New Zealand Dollar unless inflationary pressure shows signs of solidifying.
Data Released
May 17th 10:30 AUD Westpac Consumer Confidence Index (MAY)
May 17th 11:30 AUD Wage Cost Index (YoY) (1Q) 1.9%
May 17th 18:30 GBP Average Weekly Earnings (3M/YoY) (MAR) 2.4%
May 17th 19:00 EUR Eurozone Consumer Price Index (YoY) (APR F) 1.9%