. Australian Dollar Buoyed by Improved Risk Appetite – Gains could be reversed if labour market data disappoints
. UK Wage Growth Bettered Forecast – Pound rally limited as BoE still looks set to leave interest rates on hold for longer
. Disappointing Housing Market Data Failed to Limit US Dollar Strength – Latest Philadelphia Fed manufacturing survey in focus
. Euro Extended Downtrend in Spite of Solid Eurozone GDP Figures – Investors discouraged as prospect of hawkish ECB diminished
Australian Dollar
July’s Westpac leading index showed a modest rebound on the month, helping to shore up the ‘Aussie’ yesterday. However, the underlying trend of the index remains less than encouraging, still pointing towards below trend economic growth. This could limit the Australian Dollar’s ability to hold onto its gains for long, with confidence in the health of the domestic economy still somewhat muted. Even so, as market risk appetite picked back up the appeal of the antipodean currency improved.
Volatility is likely on the back of this morning’s labour market data, particularly if the headline employment change figure surprises to the downside.
Sterling
There was some relief for the Pound on Tuesday as average weekly earnings for the three months to July unexpectedly jumped from 1.9% to 2.1% on the year. While this suggests that wage growth is starting to pick up somewhat GBP exchange rates struggled to particularly capitalise on this positive showing. As wages are still lagging some way behind inflation the squeeze on household finances looks set to continue for some time, with negative implications for domestic growth.
As July’s retail sales figures are expected to point towards slowing growth in sales volumes this could exacerbate the softness of Sterling further.
Euro
Although both the second quarter Italian and Eurozone gross domestic product figures bettered expectations on the year this failed to shore up the single currency. The underlying details of the Italian data were not the most encouraging, with the country’s trade position showing fresh signs of weakening. Markets were also disappointed as reports suggested that European Central Bank (ECB) President Mario Draghi does not plan to give any new monetary policy guidance later this month at the Jackson Hole symposium.
The mood towards the Euro could deteriorate further this evening if the ECB’s July meeting minutes highlight the less hawkish outlook of policymakers.
US Dollar
Weaker-than-expected US housing starts and building permits data suggested that the domestic housing market is not in the robust state of health that policymakers might like. Even so, this was not enough to push the US Dollar lower across the board, although its commodity-correlated rivals were able to make some solid gains. With markets still betting on the odds of the Federal Reserve raising interest rates for a third time before the end of the year the downside potential of the ‘Greenback’ has remained rather limited.
However, as the Philadelphia Fed manufacturing index is expected to show a dip on the month this could erode the appeal of the US Dollar further.
Canadian Dollar
A larger-than-expected drawdown in US crude oil inventories boosted oil prices once again last night. This improvement offered support to the commodity-correlated Canadian Dollar, especially as investors returned to a more risk-positive outlook. However, the ‘Loonie’ struggled to find any particular traction against other higher-yielding currencies as confidence in the Canadian economy is still rather limited.
As forecasts point towards a contraction in manufacturing shipments on the month CAD exchange rates are likely to come under renewed pressure.
New Zealand Dollar
With the general sense of market risk appetite recovering ahead of the Fed’s meeting minutes the ‘Kiwi’ returned to an uptrend. As tensions between the US and North Korea also showed no fresh signs of escalation investors were encouraged to pile back into the higher-yielding New Zealand Dollar. Even so, these gains were somewhat fragile in nature as the prospect of further market jitters remain.
Any improvement in the ANZ consumer confidence index could offer support to the ‘Kiwi’ today, providing there is no major deterioration in wider market sentiment.
Data Released
August 17th 11:00 NZD ANZ Consumer Confidence Index (AUG)
August 17th 11:30 AUD Employment Change (JUL) 20,000
August 17th 11:30 AUD Unemployment Rate (JUL) 5.6%
August 17th 18:30 GBP Retail Sales (YoY) (JUL) 1.2%
August 17th 21:30 EUR European Central Bank Monetary Policy Meeting Minutes
August 17th 22:30 USD Philadelphia Fed Manufacturing Index (AUG) 18.0