Australian Dollar
The Australian Dollar was on lacklustre form yesterday as markets awaited the key US monetary policy meeting minutes from the Federal Reserve. Additionally, data was underwhelming, giving traders little incentive to buy into the ‘Aussie’. The Westpac leading index declined -0.12% month-on-month in April, suggesting a slowdown in the economy is ahead, while construction work done in the first quarter declined -0.7% instead of -0.5% as predicted.
Sterling
With no UK data released yesterday, the Pound was on soft form. AUD/GBP managed to scrape some gains, but the generally cautious market sentiment weighed on both currencies. Concerns remained regarding the UK general election, with markets also still trying to understand and comprehend the horrific terrorist attack on Manchester.
A second estimate of UK GDP is set for release today, but it is expected that there will be no change to the initial analysis that economic growth slowed from 0.7% to 0.3% in the first quarter.
Euro
The Euro managed to hold above opening levels versus most of its peers yesterday, although like the other major currencies it was on an unstable footing thanks to the approach of US data. EUR found no support in a speech from European Central Bank (ECB) President Mario Draghi, who said that there was no need for the bank to deviate from its current policy path, implying no near-term interest rates or adjustments to quantitative easing. While pessimistic for the outlook on monetary policy, it is becoming something of a tradition for Draghi to be downbeat in his speeches, so many investors were prepared for this and therefore his words came as little surprise.
US Dollar
The US Dollar was unsurprisingly inching down yesterday, with appetite for the ‘Greenback’ remaining cold ahead of today’s minutes from the Federal Open Market Committee’s (FOMC) May 3rd gathering. Odds of a rate hike in June were standing at 83.1%, but the potential for the minutes to drastically change market pricing of monetary tightening was keeping the USD skittish. The day’s Fed speeches provided little help, considering that Neel Kashkari warned about weak inflation, but Patrick Harker claimed a June hike was a ‘distinct possibility’.
Even discounting the fact the markets are likely to still be focused upon the FOMC minutes by this afternoon, advance goods trade balance data from April is unlikely to have much of an impact on USD if forecasts are to be believed, as the deficit will remain roughly the same.
Canadian Dollar
Like the rest of the markets, the Canadian Dollar was unsettled yesterday by the approach of this morning’s FOMC meeting minutes. There were tailwinds for the ‘Loonie’ however. As expected, the Bank of Canada (BOC) left interest rates on hold at 0.5%. While policymakers observed that ‘the uncertainties outlined in the April [Monetary Policy Report] continue to cloud the global and Canadian outlooks’, they also noted some strength in the economy and that recent data was largely positive. This helped push the Canadian Dollar higher.
New Zealand Dollar
Thanks to positive trade data, the New Zealand Dollar was on strong form yesterday. April’s trade balance unexpectedly rose to NZ$578 million instead of weakening to NZ$267 million as predicted. Export volumes climbed to NZ$4.75 billion instead of NZ$4.4 billion, helping shrink the year-to-date deficit from -NZ$3.7 billion to -NZ$3.48 billion. However, uncertainty ahead of those FOMC meeting minutes slowed the ‘Kiwi’ advance.
Data Released
May 25th 18.30 GBP Gross Domestic Product (YoY) (1Q P) 0.3%
May 25th 22.30 USD Advance Goods Trade Balance (APR) -$64.6B