Australian Dollar
As June’s building approvals saw a smaller contraction on the year than forecast the Australian Dollar found a rallying point. This indicated that the domestic housing market is not in as weak a state as expected, helping to diminish the impact of the Reserve Bank of Australia’s (RBA) dovishness. While confidence in the underlying health of the Australian economy remains somewhat limited the appeal of the antipodean currency nevertheless picked up, in part thanks to the ongoing softness of the US Dollar.
Any improvement in the Australian services PMI may encourage the ‘Aussie’ to trend higher across the board, with investors still hoping to see signs that the economy is shedding some of its reliance on the mining sector.
Sterling
Some of the bullishness of the Pound eased in response to a disappointing UK construction PMI, which showed a sharp slowing on the month. Naturally this diminished hopes that the domestic economy could start the third quarter on a stronger footing, even though the construction sector accounts for a relatively small proportion of the UK gross domestic product. As markets braced for this evening’s Bank of England (BoE) policy meeting, though, the losses of GBP exchange rates were somewhat limited.
If July’s services PMI proves softer or the BoE leans towards greater dovishness this could see Sterling come under renewed pressure.
Euro
The ongoing softness of the US Dollar continued to benefit the Euro during Wednesday’s European session, pushing the single currency to fresh highs. While the Eurozone producer price index offered no surprises this was not enough to diminish EUR exchange rates, even though the European Central Bank (ECB) still looks likely to maintain a dovish to neutral bias for longer.
However, the Euro could return to a weaker footing if the latest ECB Economic Bulletin underlines policymakers’ caution over inflationary pressure and the domestic outlook.
US Dollar
Demand for the US Dollar remained muted in the wake of a disappointing ADP employment change report. As 178,000 employees were added to the private workforce in July, as opposed to the 190,000 that had been forecast, the mood towards the ‘Greenback’ soured further. This weaker showing does not bode well for Friday’s non-farm payrolls report, with the recent tightening of the labour market potentially losing momentum. As the situation in the White House has yet to stabilise a sense of political turmoil also weighed on the US Dollar.
Tonight’s ISM non-manufacturing composite PMI may add to the bearishness of USD exchange rates, with growth thought to have eased on the month.
Canadian Dollar
Oil prices remained volatile overnight, with US crude oil stockpiles showing a smaller decline on the week than forecast. This weighed heavily on the Canadian Dollar, especially as the wider sense of market risk appetite was still limited by geopolitical concerns. However, as the crisis in Venezuela continued to deepen the potential for further Brent crude rallies remained.
In the absence of fresh Canadian data the ‘Loonie’ will remain vulnerable to any further deteriorations in the oil market today.
New Zealand Dollar
Although the second quarter unemployment rate fell to a nine-year low of 4.8% overnight this failed to particularly boost the New Zealand Dollar. Investors were instead discouraged by a sharp and unexpected decline in the participation rate and disappointing wage growth figures. This suggested that the New Zealand economy remains in a relatively fragile state, limiting the appeal of the ‘Kiwi’.
If the ANZ commodity price index shows an improvement on the month this could offer some support to the New Zealand Dollar.
Data Released
August 3rd 09:30 AUD Services PMI (JUL)
August 3rd 11:00 NZD ANZ Commodity Price (JUL)
August 3rd 11:30 AUD Trade Balance (JUN) 1.8 billion
August 3rd 18:00 EUR ECB Publishes Economic Bulletin
August 3rd 18:30 GBP Services PMI (JUL) 53.6
August 3rd 21:00 GBP Bank of England Rate Decision 0.25%
August 4th 00:00 USD ISM Non-Manufacturing Composite 56.9