Australian Dollar
The Australian Dollar may have started the day on the decline on Friday, but later was able to make bullish gains thanks to the poor US data. US rate hike bets were wobbling; although the markets still expect a hike this month, there are now fears it could be a ‘dovish hike’, meaning the Fed could be reticient to tighten monetary policy any further this year. This allowed the ‘Aussie’, which had been presssured lower due to strong bets of a positive US data print, to swiftly rebound out of negative territory.
Tuesday will be a volatile day for the Australian Dollar, as the Reserve Bank of Australia (RBA) will announce the decisions from their latest monetary policy meeting. While no change to interest rates is expected, markets will be watching for signs of optimism or pessimism from policymakers that might suggest whether rates are likely to rise any time soon.
Sterling
Election jitters were gripping the Pound on Friday, allowing the AUD/GBP exchange rate to record strong gains. Sterling didn’t find any support from the Markit construction PMI, despite the index unexpectedly rising and striking a 17-month high of 56. However, polls continued to make the once-held belief that the Conservatives would storm to a landslide victory seem far-fetched and so the Pound was quickly sold. The latest survey by Ipsos MORI revealed that the Tory lead in the polls had fallen from 15 points to 5 in just two weeks.
The Pound is likely to struggle to find any traction today, given that Thursday sees the polls open for the UK general election. Friday is when most volatility for Sterling is likely to materialise, as the results will be known.
Euro
The Euro was on polarised form on Friday, gaining strongly versus the Pound, US Dollar and Canadian Dollar, but slumping against the New Zealand Dollar and Japanese Yen. The common currency itself had very little intrinsic movement on the day – the only data released were low-impact producer price figures – so was responding to developments in its peers. The US Dollar was weak and, as the Euro somewhat occupies the middle ground between safe-haven and risk asset, the common currency was largely unappealing for those seeking either safety or risk.
The European Central Bank (ECB) will announce its latest monetary policy decisions on Thursday. It is highly unlikely there will be any changes, but markets will be looking for signs that the Governing Council is getting ready to reduce the extent of its massive quantitative easing programme. A press conference with ECB President Mario Draghi shortly afterwards could sink the Euro if the notoriously dovish Italian remains as pessimistic as ever.
US Dollar
A surprisingly-poor round of US data caused the US Dollar to plummet on Friday. The headline non-farm payrolls report showed a below-forecast 138,000 new jobs in April; nearly -50,000 fewer than economists had anticipated. The unemployment rate fell to 4.3%, but this was due to the distorting effect of a fall in the participation rate, meaning fewer people were looking for work than before. Wage growth clocking in at 0.2% in May would have represented a slowdown had April’s figure not been revised from 0.3% to 0.2%. Combined with a widening trade balance for April, strong expectations of a Fed rate hike on June 14th were starting to seem less convincing.
The only headline US data set for release this week is the ISM services/non-manufacturing composite for May. A weak result here could further unsettle the markets, as it would provide yet more ammunition to the dovish members of the Federal Open Market Committee (FOMC) to argue against a rate hike.
Canadian Dollar
Disappointing trade figures for April and slumping crude oil prices prevented the Canadian Dollar from capitalising on the US Dollar weakness on Friday. The trade balance (also known as international merchandise trade) was predicted to shrink from -CA$0.14 billion to -CA$0.7 billion, but instead clocked in at -CA$0.37 billion after March’s deficit was revised up to -CA$0.94 billion. Meanwhile crude oil was slumping nearly -2% after President Donald Trump announced the US would withdraw from the Paris Agreement on climate change. This could see US oil production increase if certain environmental targets are abandoned, further worsening the global crude oil oversupply.
Canadian labour market data is set for release on Friday, so the ‘Loonie’ could end the week on volatile form.
New Zealand Dollar
There was no New Zealand data released on Friday, but the ‘Kiwi’ was able to rocket higher after the poor US data was released. NZD managed to rack up gains in excess of 1.1% against most of its peers as risk appetite was reignited on the back of a less optimistic outlook for US monetary policy.
While there is no tier-one New Zealand data on offer this week, the New Zealand Dollar is still likely to be rocked by high-profile data. The Chinese consumer price index figures for May will give a good indication of domestic demand, which would affect the New Zealand Dollar as a key exporter to China.
Data Released
June 2nd 00.00 USD ISM Services/Non-Manufacturing Composite (MAY) 57.2
June 2nd 14.30 AUD Reserve Bank of Australia Rate Decision (6 JUN) 1.50%
June 8th 22.30 EUR ECB President Mario Draghi Holds Press Conference
June 9th GBP UK General Election Results Announced
June 9th 11.30 CNY Consumer Price Index (YoY) (MAY) 1.1%
June 9th 22.30 CAD Net Change in Employment (MAY) 17.4k