Australian Dollar
Comments from Reserve Bank of Australia (RBA) Governor Philip Lowe failed to offer any particular support to AUD exchange rates yesterday. As Lowe noted the RBA’s close monitoring of the Chinese debt mountain investors saw little cause for encouragement. A resurgence in market risk aversion also weighed on the Australian Dollar, with trade tensions between the US and China showing signs of reigniting.
Unless investors return to a more risk-hungry mood AUD exchange rates could struggle to recover a stronger footing in the near term.
Sterling
Demand for the Pound slumped sharply on Wednesday thanks to the disappointing nature of the latest UK consumer price index data. Investors were caught off guard as inflation unexpectedly dipped in April, slowing from 2.5% to 2.4% on the year. This appeared to undermine the case for the Bank of England (BoE) to raise interest rates in the summer, leaving GBP exchange rates to plunge as the odds of an August rate hike were cut.
As forecast point towards a slowdown in UK retail sales Sterling could lose further ground today.
Euro
The mood towards the single currency soured sharply as May’s raft of Eurozone manufacturing and services PMIs failed to impress. As economic growth across the currency union showed fresh signs of slowing this put renewed pressure on EUR exchange rates. A weaker-than-expected Eurozone consumer confidence index and lingering concerns over the political situation in Italy helped to erode the appeal of the Euro further.
While no change is forecast for the finalised first quarter German gross domestic product data this may still act as a dampener for EUR exchange rates.
US Dollar
Stronger-than-forecast US manufacturing and services PMIs helped to shore up the US Dollar overnight, encouraging greater optimism in the outlook of the world’s largest economy. With the US economy continuing to perform well markets remain confident that the Federal Reserve will pursue a more aggressive pace of monetary tightening in the coming months. Although new home sales showed a -1.5% contraction on the month this failed to dent USD exchange rates.
A similarly weak showing from tonight’s house price index and existing home sales figures, however, could knock some of the wind out of the US Dollar.
Canadian Dollar
Oil prices came under fresh pressure on Wednesday as the latest US crude inventories data showed a surprise build-up on the week. As rising US production could weigh heavily on the global oil market this left the Canadian Dollar on a softer footing. CAD exchange rates also came under pressure thanks to the relative strength of the US Dollar and lingering worries over the future of NAFTA.
In the absence of any fresh domestic data the Canadian Dollar looks set to remain on a downtrend in the near term.
New Zealand Dollar
Confidence in the New Zealand Dollar declined in response to the latest signs of strength within the US economy. With trade jitters weighing on investor sentiment there was little incentive to buy into the risk-sensitive ‘Kiwi’ yesterday. Even so, the New Zealand Dollar was still able to push higher against some of its more vulnerable rivals.
If the New Zealand trade balance returns to a state of surplus in April, driven by a decline in imports, this could offer NZD exchange rates a rallying point.
Data Released
May 24th 08:45 NZD Trade Balance (APR) 198 million
May 24th 16:00 EUR German Gross Domestic Product (YoY) (1Q F) 2.3%
May 24th 18:30 GBP Retail Sales Ex Auto Fuel (YoY) (APR) 0.4%
May 25th 00:00 USD Existing Home Sales (MoM) (APR) -0.9%