Australian Dollar
As the risk of a US-China trade war appeared to diminish the mood towards the Australian Dollar naturally improved. AUD exchange rates benefitted from the more conciliatory nature of the latest communication between the two nations, with market risk appetite naturally improving. However, the ‘Aussie’ struggled to push higher across the board thanks to lingering doubts over the policy outlook of the Reserve Bank of Australia (RBA).
Comments from RBA Governor Philip Lowe could prompt AUD exchange rates to return to a weaker footing today, however, if he maintains a more dovish stance on monetary policy.
Sterling
GBP exchange rates leapt higher on the back of commentary from Bank of England (BoE) policymaker Gertjan Vlieghe, who suggested that interest rates could rise six times over the next three years. This more hawkish outlook spurred investors to pile back into Sterling, betting on the prospect of the BoE raising rates again in the near future. This rally proved short-lived, though, as BoE Governor Mark Carney took a more cautious view.
Any signs that inflationary pressure is picking back up within the UK economy could help to shore up the Pound this evening,
Euro
Confidence in the Euro remained generally limited by concerns surrounding the new Italian government, with investors nervous about the prospect of the populist coalition taking power. While the chances of Italy ditching the single currency look slim worries remain over the election promises of the two parties. With the new government looking set to clash with the EU over budget rules and its large spending plans investors have seen little reason not to sell out of the Euro.
May’s Eurozone manufacturing and services PMIs may put further pressure on EUR exchange rates if domestic growth shows further signs of slowing.
US Dollar
Demand for the US Dollar eased overnight, even after the Richmond Fed manufacturing index surprised sharply to the upside. While the index rose from -3 to 16 in May this was not enough to prompt a fresh bullish run for USD exchange rates. With market risk appetite picking up once again in response to easing trade concerns the US Dollar struggled to hold onto any particular support.
With forecasts pointing towards a sharp contraction in April’s new home sales figure the mood towards the US Dollar could sour further today.
Canadian Dollar
The continued strength of the oil market kept CAD exchange rates on a stronger footing, with Brent crude breaking back above US$80 per barrel overnight. Further support was in store for the Canadian Dollar on the back of March’s wholesale trade sales data. As sales showed a larger-than-expected rebound on the month this encouraged greater confidence in the outlook of the Canadian economy.
If oil prices start to fall back, however, this could leave the Canadian Dollar exposed to fresh downside pressure.
New Zealand Dollar
NZD exchange rates benefitted from the easing in trade tensions between the US and China, buoyed by improved market sentiment. Even so, the New Zealand Dollar failed to hold onto these gains for long thanks to underlying doubts over the outlook of the domestic economy and the dovishness of the Reserve Bank of New Zealand (RBNZ).
In the absence of any fresh domestic data NZD exchange rates could struggle to find any particular headway today.
Data Released
May 23rd 10:30 AUD Westpac Leading Index (MoM) (APR)
May 23rd 18:00 EUR Eurozone Manufacturing PMI (MAY P) 56
May 23rd 18:00 EUR Eurozone Services PMI (MAY P) 54.7
May 23rd 18:00 AUD RBA Governor Lowe Gives Speech in Sydney
May 23rd 18:30 GBP Consumer Price Index (YoY) (APR) 2.5%
May 24th 00:00 USD New Home Sales (MoM) (APR) -2.3%