Australian Dollar Strengthens in spite of Cut RBA Forecasts
Even though the Reserve Bank of Australia (RBA) left interest rates on hold for the thirtieth consecutive month yesterday this was not enough to prevent the Australian Dollar pushing higher. While the central bank cut its growth forecasts and showed signs of unease over the current state of the domestic housing market AUD exchange rates still made solid gains across the board. A better-than-expected widening of December’s trade surplus helped to shore up demand for the Australian Dollar, meanwhile.
Comments from RBA Governor Philip Lowe could put pressure on AUD exchange rates, however, if his tone proves more dovish in nature today.
Pound Softens as UK Service Sector Stagnates
Confidence in the Pound deteriorated overnight after January’s UK services PMI fell short of forecast, dropping from 51.2 to just 50.1. This decline puts the service sector in a state of near-stagnation, raising the odds of a weaker first quarter gross domestic product. With Brexit-based uncertainty increasingly dragging on the UK economy investors saw little incentive to favour the Pound, leaving GBP exchange rates on the back foot last night.
With no fresh UK data scheduled for release today the Pound may struggle to find any positive momentum.
Italian Services PMI Contraction Drags Down Euro
The Euro slumped in the wake of January’s raft of Eurozone services PMIs yesterday, driven lower by disappointing French and Italian data. Investors were particularly concerned by the surprise contraction in the Italian services PMI, which suggests that the struggling economy is continuing to lose momentum in 2019. With Italy looking set to remain in a state of recession in the near future EUR exchange rates came under pressure, as markets see the potential for a fresh flaring up of political tensions.
Another contraction in December’s German factory orders data could prompt the Euro to lose further ground this afternoon.
Weaker Non-Manufacturing Index Fails to Dent US Dollar
January’s ISM non-manufacturing composite fell short of forecast, easing from 58 to 56.7 on the month. However, this was not enough to put any particular dampener on USD exchange rates as the index remains in a fairly solid state of growth. With the US economy showing only limited weakness in the wake of the recent government shutdown the downside potential of the US Dollar was muted. The relative weakness of the Euro also helped to shore up USD exchange rates, thanks to the single currency’s negative correlation with the US Dollar.
If tonight’s trade balance figure narrows on the month this may give USD exchange rates a fresh rallying point.
Muted Oil Market Limits Canadian Dollar Appeal
As oil prices remained under pressure last night support for the Canadian Dollar proved largely limited. The appeal of the risk-sensitive currency also weakened in response to the bullishness of the US Dollar, even though markets see little chance of the Federal Reserve raising interest rates in the near term. Worries over the global trade outlook put additional weight on CAD exchange rates, meanwhile.
The Canadian Dollar could be exposed to further weakness if December’s building permits figures show a decline on the month as forecast.
Commodity Price Index Rebound Shores up New Zealand Dollar
A sharp rebound in January’s ANZ commodity price index offered a boost to the New Zealand Dollar yesterday, even though confidence in the domestic outlook remains lacking. As the index strengthened 2.1% on the month this encouraged demand for the commodity-correlated NZD, even as worries over the global outlook persist.
However, any deterioration in market risk appetite today or decline in prices at the latest Global Dairy Trade auction could weigh heavily on NZD exchange rates.
February 6th 12:30 AUD Reserve Bank of Australia Governor Lowe Speech
February 6th 18:00 EUR German Factory Orders (YoY) (DEC) -6.7%
February 7th 00:30 USD Trade Balance (NOV) -54 billion
February 7th 00:30 CAD Building Permits (MoM) (DEC) -1.0%