Easing Market Risk Aversion Encourages Australian Dollar
The mood towards the Australian Dollar saw some improvement yesterday as the initial bout of market jitters over the latest escalation of the US-China trade spat diminished. Although tensions between the world’s two largest economies remain heightened AUD exchange rates were able to recover some of their lost ground. Even so, April’s NAB business confidence index failed to offer any encouragement as sentiment failed to show any material improvement on the month.
If May’s Westpac consumer confidence index proves similarly underwhelming this morning the Australian Dollar could come under further pressure.
Pound Slumps in spite of Unemployment Hitting 44-Year Low
A surprise improvement in the headline UK unemployment rate failed to give GBP exchange rates a boost overnight. While unemployment fell to a fresh 44-year low of 3.8% this was not enough to encourage any particular sense of confidence in the outlook of the UK economy. Investors instead focused on the underwhelming nature of the latest wage growth data, which suggests that households are coming under renewed pressure. Growing tensions over Brexit also weighed on the Pound.
As long as the Labour and Conservative leaderships remain at odds over the issue of Brexit the strength of GBP exchange rates is likely to remain limited.
Unexpectedly Negative German Economic Sentiment Weighs on Euro
Contrary to market expectations, May’s German ZEW economic sentiment survey fell into negative territory as it slipped from 3.1 to -2.1. This highlighted the continued lack of confidence within the Eurozone’s powerhouse economy as businesses adopt an increasingly cautious outlook. With investors expecting to see muted growth from the German economy over 2019, given present trade tensions, the appeal of the Euro diminished.
However, if the first quarter German gross domestic product shows an acceleration on the year this could encourage EUR exchange rates to return to a stronger footing.
Improved Business Optimism Fails to Benefit US Dollar
Although the NFIB small business optimism index saw a solid improvement on the month this was not enough to shore up USD exchange rates last night. While business sentiment showed fresh signs of picking up in April the latest escalation in the US-China trade dispute continues to cast a shadow over the economic outlook. With the previous day’s bout of risk aversion fading the US Dollar fell out of favour.
Demand for the US Dollar could weaken further tonight if April’s advance retail sales data slows as sharply on the month as forecast.
Canadian Dollar Buoyed by Oil Prices
As the oil market remained in a positive mood last night the Canadian Dollar found some support against its rivals. With the general sense of market risk aversion diminished the appeal of the commodity-correlated CAD naturally improved. A weaker US Dollar also offered support to CAD exchange rates, particularly as the Federal Reserve is coming under increasing pressure to cut interest rates.
Further volatility is likely in store for the Canadian Dollar overnight as forecasts point towards a modest uptick in the consumer price index data for April.
New Zealand Dollar Shrugs Off Falling House Sales
Another sharp decline in the REINZ house sales index added to worries over the outlook of the New Zealand economy yesterday, with the housing market remaining in a bearish state. Even so, NZD exchange rates were able to hold onto a positive footing thanks to the general improvement in market risk appetite. While New Zealand still looks vulnerable to any deterioration in global growth this was not enough to weigh down the New Zealand Dollar at this stage.
Any weakness in the latest raft of Chinese industrial production data could see the New Zealand Dollar trending lower once again, though.
Data Releases
May 15th 11:30 AUD Westpac Consumer Confidence Index (MAY) 100.4
May 15th 16:00 EUR German Gross Domestic Product (YoY) (1Q) 0.7%
May 15th 22:30 CAD Consumer Price Index (YoY) (APR) 2.0%
May 15th 22:30 USD Advance Retail Sales (MoM) (APR) 0.2%