Australian Dollar
Confidence in the ‘Aussie’ remained relatively limited on the back of the Reserve Bank of Australia’s (RBA) August meeting minutes. While policymakers sounded a more positive note on the relative strength of the domestic labour market this was offset by fresh warnings over the housing market and the Australian Dollar. Altogether the minutes seemed to point towards the RBA leaving interest rates on hold for the foreseeable future, giving investors little reason to buy into the antipodean currency.
Another weaker showing from the Westpac leading index could add downside pressure to AUD exchange rates, as markets remain less than convinced in the underlying health of the Australian economy.
Sterling
As the UK consumer price index unexpectedly held steady at 2.6% on the year in July the Pound slumped sharply across the board. Investors were disappointed by the lack of acceleration in domestic inflationary pressure, with the odds of the Bank of England (BoE) raising interest rates before the end of the year diminishing further. Even though inflation eased slightly on the month, boding well for UK households suffering from the ongoing wage squeeze, this was not enough to prevent GBP losses.
Even so, if wage growth is found to have picked up in the three months to June this could give the Pound a strong boost.
Euro
Germany’s second quarter gross domestic product data proved to be rather mixed, with the quarterly measure showing a surprise dip. As growth eased from 0.7% to 0.6% on the quarter the mood towards the Euro soured, even though the Eurozone’s powerhouse economy clearly remains in a robust state of health. With the US Dollar still on bullish form, in spite of easing geopolitical tensions, the single currency was lacking in any particular support throughout Tuesday’s European session.
An uptick in the Italian second quarter gross domestic product could offer some reassurance to markets, increasing optimism in the outlook of the currency union as a whole.
US Dollar
Demand for the ‘Greenback’ remained bullish overnight after July’s advance retail sales data bettered expectations. As the data for June was also revised higher this painted a positive picture of the US economy, encouraging bets that the Federal Reserve could still raise interest rates for a third time in 2017. A sharp uptick in the Empire manufacturing index added to the strength of the US Dollar, pointing towards a healthy improvement in the manufacturing sector.
However, if the housing market shows signs of slowing through weaker housing starts and building permits figures this could reverse the US Dollar’s recent gains.
Canadian Dollar
Even though Brent crude saw a sharp plunge towards the psychologically important US$50 per barrel mark overnight this was not enough to particularly dent the Canadian Dollar. While demand for higher-yielding assets remained limited thanks to the relative strength of the US Dollar the ‘Loonie’ still made gains against many of the majors. As the Canadian existing home sales report showed a more modest contraction on the month this helped to support CAD exchange rates, even as the housing market remains under pressure.
If US oil inventories fail to show a sufficient drawdown on the week this could leave the Canadian Dollar vulnerable to a fresh downtrend tonight.
New Zealand Dollar
The mood towards the New Zealand Dollar remained muted in the face of persistent market risk aversion and the strength of the safe-haven US Dollar. Investors were further deterred overnight thanks to another weakening of prices at the Global Dairy Trade auction, pointing towards continued softness in the dairy sector.
As long as risk appetite remains limited the ‘Kiwi’ is unlikely to find any particular support in the short term.
Data Released
August 16th 10:30 AUD Westpac Leading Index (MoM) (JUL)
August 16th 11:30 AUD Wage Cost Index (YoY) (2Q) 1.9%
August 16th 18:00 EUR Italian Gross Domestic Product (YoY) (2Q) 1.4%
August 16th 18:30 GBP Average Weekly Earnings (3M/YoY) (JUN) 2.0%
August 16th 19:00 EUR Eurozone Gross Domestic Product (YoY) (2Q) 2.1%
August 16th 22:30 USD Housing Starts (MoM) (JUL) 0.4%
August 16th 22:30 USD Building Permits (MoM) (JUL) -2.0%