Australian Dollar
Even though China’s second quarter growth and production data bettered expectations this was not enough to shore up the ‘Aussie’. While the world’s second largest economy showed steady growth of 6.9% on the year the appeal of commodity-correlated currencies remained generally limited on Monday, even as base metal prices strengthened sharply. Confidence in the Australian Dollar remained generally muted in anticipation of the publication of the Reserve Bank of Australia’s (RBA) meeting minutes, with policymakers expected to have demonstrated a neutral outlook.
If the minutes lean towards a more cautious tone the ‘Aussie’ is likely to extend its downtrend today.
Sterling
Political worries weighed on the Pound once again, after reports of cabinet infighting circulated over the weekend. Investors are concerned that divisions within the minority Conservative government could increase the risks of the UK suffering a hard exit from the EU, or even leaving without any new deal in place. While formal Brexit negotiations have yet to show any signs of significant souring they have continued to hang over the domestic outlook, limiting the appeal of Sterling.
Confidence in the Pound could weaken further tonight if June’s consumer price index report fails to impress, with the odds of a Bank of England (BoE) interest rate hike likely to diminish.
Euro
Demand for the single currency picked up somewhat on the back of the finalised Eurozone consumer price index report for June. While the headline inflation rate was confirmed to have slowed on the year this was balanced out by an uptick in the core measure. As European Central Bank (ECB) policymakers remain largely unconvinced by the recent uptick in inflationary pressure, though, the prospect of any imminent monetary policy tightening remains distinctly slim.
The ECB’s latest bank lending survey could encourage a fresh round of Euro selling if it highlights any major concerns within the banking union.
US Dollar
Following Friday’s raft of disappointing US data the ‘Greenback’ came under further pressure as the latest Empire manufacturing index also fell short of forecast. This weaker showing added to speculation that the Federal Reserve might not pursue such an aggressive pace of monetary tightening as previously thought. With the odds of another 2017 interest rate hike already fading the upside potential of the US Dollar has diminished, even though an alteration to the Fed balance sheet is still expected in September.
However, if domestic data continues to surprise to the downside the US Dollar could struggle to hold onto a stronger footing against any of its rivals.
Canadian Dollar
The mood towards the Canadian Dollar deteriorated overnight thanks to a sharp contraction in existing home sales. This pointed towards a loss of momentum within the domestic housing market, suggesting that the Canadian economy is not in the most robust of states at this juncture. Even though the Baker Hughes rig count indicated a smaller increase in US production in the last week, pushing oil prices higher, the ‘Loonie’ ultimately failed to capitalise on this.
Even so, if Brent crude breaks back above the psychologically important US$50 per barrel mark this could shore up the commodity-correlated Canadian Dollar.
New Zealand Dollar
A modest dip in the New Zealand services PMI left the ‘Kiwi’ generally lacking in support at the start of the week. While the measure remained firmly within growth territory at 58.6 this was not enough to boost the appeal of the New Zealand Dollar. However, as confidence in the underlying health of the domestic economy remains relatively bullish NZD exchange rates may soon return to a stronger footing.
This morning’s second quarter consumer price index is likely to provoke greater volatility for the ‘Kiwi’, with forecasts point towards a slowdown in inflationary pressure.
Data Released
July 18th 08:45 NZD Consumer Price Index (YoY) (2Q) 1.9%
July 18th 11:30 AUD Reserve Bank of Australia Meeting Minutes
July 18th 18:00 EUR ECB Bank Lending Survey
July 18th 18:30 GBP Consumer Price Index (YoY) (JUN) 2.9%
July 18th 19:00 EUR German ZEW Economic Sentiment Survey (JUL) 18