Australian Dollar
Markets failed to take any particular encouragement from the Reserve Bank of Australia’s (RBA) policy meeting, with the central bank maintaining a distinctly neutral tone at this juncture. This disappointed investor hopes that the RBA could take a cue from other major central banks and turn more hawkish in outlook. With market risk appetite generally lacking on Tuesday there was little to stop the Australian Dollar slumping sharply, in spite of a solid uptick in the weekly consumer confidence index.
A positive showing from June’s service PMI could offer the ‘Aussie’ a rallying point, although investor sentiment is likely to remain generally muted in the short term.
Sterling
Confidence in the Pound was not improved by a moderate dip in June’s construction PMI, with the sector losing momentum as business optimism diminished. While Bank of England (BoE) policymaker Ian McCafferty maintained a decidedly hawkish outlook on interest rates in his latest commentary this was countered by dovish words from another member of the Monetary Policy Committee (MPC). As Gertjan Vlieghe noted that it is safer to raise interest rates a little too late rather than too soon the balance on the MPC still looks finely split.
If the UK services PMI also shows a slowing in growth on the month the appeal of Sterling could weaken further, given that the service sector remains the primary engine of the domestic economy.
Euro
May’s Eurozone producer price index data pointed towards a weaker inflationary outlook for the currency union. As European Central Bank (ECB) chief economist Peter Praet cautioned that it is still too soon to consider any tapering of the quantitative easing program the Euro extended its downtrend further. Adding to the bearish mood was news that the disbursement of the next tranche of Greek bailout funds had been delayed, raising the prospect of a fresh Eurozone crisis in the coming weeks.
Tonight’s Eurozone retail sales figures could shore up the single currency, though, with consumer spending expected to have remained resilient in May.
US Dollar
A better-than-expected ISM manufacturing index helped to keep the ‘Greenback’ on a stronger footing on Tuesday, even though US markets were closed for Independence Day. This solid growth in the manufacturing sector encouraged greater confidence in the underlying health of the US economy, boosting bets that the Federal Reserve will raise interest rates again in the near future. As a result the US Dollar continued to trend higher against many of the majors throughout Tuesday’s European session.
Even so, renewed volatility is likely for USD exchange rates once the Federal Open Market Committee’s (FOMC) June meeting minutes are published.
Canadian Dollar
A slight dip in the Canadian manufacturing PMI was not enough to set the ‘Loonie’ on a bearish trend overnight. Given that the index remained firmly in expansion territory confidence in the health of the domestic economy remained solid, with markets still betting that the Bank of Canada (BOC) will return to tighter monetary policy in the coming months. With Brent crude brushing against the US$49 per barrel mark the appeal of the commodity-correlated currency strengthened.
However, if the latest US stockpiles data points towards a continued build-up in oil supplies the mood towards the Canadian Dollar could soon sour again.
New Zealand Dollar
Although the latest Global Dairy Trade auction resulted in a slight dip in dairy prices the New Zealand Dollar maintained an uptrend. The ‘Kiwi’ continued to benefit from the relative weakness of its antipodean cousin, even as investors were encouraged to sell out of other higher-yielding assets.
Nevertheless, if June’s ANZ commodity price index proves positive the New Zealand Dollar is likely to hold onto its bullish form today.
Data Released
July 5th 09:30 AUD Services PMI (JUN)
July 5th 11:00 NZD ANZ Commodity Price Index (JUN)
July 5th 18:30 GBP Services PMI (JUN) 53.5
July 5th 19:00 EUR Eurozone Retail Sales (YoY) (MAY) 2.3%
July 6th 04:00 USD Federal Open Market Committee Meeting Minutes (JUN 14)