Australian Dollar
Although May’s services PMI weakened sharply from 53 to 51.5 this failed to particularly dent the Australian Dollar. While investors have been hoping to see further signs that the economy is rebalancing away from its reliance on the mining sector the mood towards the ‘Aussie’ remained positive. An uptick in the TD Securities inflation forecast helped to boost confidence in the antipodean currency, encouraging hopes that the Reserve Bank of Australia (RBA) will adopt a positive outlook at its June policy meeting.
If the RBA does take a more optimistic view today the Australian Dollar could extend its bullish run further, even though any prospect of tighter monetary policy remains distant.
Sterling
Despite ongoing election jitters the Pound returned to an uptrend during Monday’s European session, with opinion polls still painting a mixed picture. While the outcome of the snap general election is still rather more uncertain than markets would like, though, Sterling was able to start the week on a stronger footing. Even though the latest UK services PMI fell rather short of forecast, failing to emulate the bullish manufacturing and construction PMIs, GBP exchange rates were generally buoyant. However, with the election campaign now in its final days the Pound remains vulnerable to downside pressure.
A contraction in BRC like-for-like sales could reverse Sterling’s earlier gains, with the outlook of the economy still far from bullish.
Euro
With risk appetite improving the appeal of the Euro was limited, particularly as the issue of Greece continues to hang over the currency union. May’s raft of Eurozone services PMIs proved rather more mixed than anticipated, even though the overall picture remained one of solid growth. Nevertheless, as the threat of a fresh chapter in the Greek debt crisis continues to loom the appeal of the single currency is likely to remain relatively muted.
Any slowdown in Eurozone retail sales could weaken the Euro further tonight, with confidence in the robustness of the economy still somewhat fragile in nature.
US Dollar
A weaker-than-expected ISM non-manufacturing composite index suggested that the world’s largest economy is not in the most robust state at this juncture. While the odds continue to favour the Federal Reserve raising interest rates imminently the prospect of further monetary tightening seems to be diminishing. This dampened the appeal of the US Dollar, particularly as durable goods orders were also revised lower in April. With economic growth looking a little less resilient than anticipated the ‘Greenback’ may struggle to find any significant traction against its rivals.
So long as investors continue to expect a June interest rate hike, though, the downside potential of the US Dollar is likely to remain limited.
Canadian Dollar
News that Saudi Arabia, Egypt, the United Arab Emirates and Bahrain had all severed diplomatic relations with Qatar prompted the oil price to surge higher overnight. Speculation that the move could disrupt Qatari energy supplies prompted Brent crude to break back above the psychologically important US$50 per barrel mark. Although it was unable to hold onto these gains for long, with global oversupply glut fears persisting, this was enough to boost the Canadian Dollar.
As US oil production is expected to pick up further in the coming months oil prices are likely to remain under pressure, potentially dragging on the commodity-correlated ‘Loonie’.
New Zealand Dollar
The local bank holiday left the ‘Kiwi’ generally lacking in support at the start of the week. In the absence of any fresh domestic data the New Zealand Dollar trended lower against many of the majors, despite a general uptick in market risk appetite. With the Reserve Bank of New Zealand (RBNZ) looking set to leave interest rates unchanged in the near future investors have seen little particular reason to favour the ‘Kiwi’.
A fresh uptick in prices at tonight’s GlobalDairyTrade auction could encourage the New Zealand Dollar to rally, however.
Data Released
June 6th 09:01 GBP BRC Sales Like-For-Like (YoY) (MAY) -0.5%
June 6th 11:00 NZD ANZ Commodity Price Index (MAY)
June 6th 14:30 AUD Reserve Bank of Australia Rate Decision 1.50%
June 6th 19:00 EUR Eurozone Retail Sales (YoY) (APR) 2.1%