Signs of RBA Optimism Boost Australian Dollar
The mood towards the Australian Dollar picked up significantly in the wake of the Reserve Bank of Australia’s (RBA) May policy meeting. Investors were surprised by the relatively optimistic nature of the central bank’s commentary, which saw only a modest downward revision to its 2019 growth forecast. As the odds of an imminent interest rate cut diminished this offered AUD exchange rates a boost, even as the general sense of market risk appetite eased.
In the absence of any fresh domestic data the Australian Dollar may struggle to hold onto a positive footing today, however.
Lack of Brexit Progress Hampers Pound
Support for the Pound proved limited last night as global trade anxieties mounted and a resolution to the Brexit issue continued to elude MPs. While the Halifax house price index showed a solid improvement in April, with prices accelerating 4.5% on the year, this was not enough to shore up GBP exchange rates. As concerns over the outlook of the domestic economy remain investors still saw little incentive to buy into Sterling.
As forecasts point towards a strong rebound from the BRC like-for-like sales data, though, GBP exchange rates could find a rallying point this morning.
Euro Muted as German Factory Orders Contract
Confidence in the health of the Eurozone’s powerhouse economy took a fresh blow as German factory orders contracted sharply on the year. As the monthly reading failed to pick up steam as forecast this gave markets little reason for optimism as signs continue to point towards a weaker German manufacturing sector. However, as market risk appetite declined in response to the latest escalation in US-China trade tensions this helped to limit the downside potential of the Euro.
Another disappointing showing from March’s German industrial production data could add to the bearish mood of the single currency.
Threat of Fresh US Tariffs Shores up US Dollar
As the Trump administration escalated trade tensions with China, threatening to impose a higher level of tariffs on Chinese produce, this prompted a fresh bout of market risk aversion. USD exchange rates benefitted from the cautious mood, with safe-haven demand picking up in response to fears of a prolonged trade spat. Even though fresh tariffs risk damaging the US economy, with exports to China already showing signs of easing, this was not enough to dampen the appeal of the US Dollar.
If commentary from Federal Reserve policymakers takes a cautious tone in the days ahead this could limit US Dollar demand.
Trade Anxiety Limits Canadian Dollar Support
CAD exchange rates struggled to find much in the way of traction overnight as confidence in the underlying health of the Canadian economy remains limited. The latest intensification in the US-China trade spat weighed heavily on the oil market, meanwhile, as worries over the global growth outlook picked up once again.
A slowdown in April’s housing starts figure could add to the softness of the Canadian Dollar tonight, given existing anxiety over the outlook of the domestic construction sector.
New Zealand Dollar Softens Ahead of RBNZ Decision
Mounting anticipation for the Reserve Bank of New Zealand’s (RBNZ) May policy meeting limited the appeal of the New Zealand Dollar yesterday. With forecasts largely pointing towards an interest rate cut investors were left with limited incentive to favour the antipodean currency over its rivals. Increased global trade tensions also weighed on NZD exchange rates.
If the RBNZ cuts interest rates as expected this afternoon this could leave the New Zealand Dollar biased to the downside.
Data Releases
May 8th 09:01 GBP BRC Like-for-Like Sales (YoY) (APR) 2.4%
May 8th 12:00 NZD Reserve Bank of New Zealand Rate Decision 1.5%
May 8th 16:00 EUR German Industrial Production (YoY) (MAR) -2.7%
May 8th 22:15 CAD Housing Starts (APR) 196,400