RBA Dovishness Weighs Heavily on Australian Dollar
Comments from Reserve Bank of Australia (RBA) Governor Philip Lowe saw the Australian Dollar trending sharply lower yesterday. Investors were caught off guard by the dovish nature of Lowe’s message as he warned that inflation will not reach its target as long as the current level of unemployment persists. With the RBA looking increasingly likely to cut interest rates at its June meeting AUD exchange rates were left on the back foot.
A contraction in the Westpac leading index could add to the weakness of the Australian Dollar today as confidence in the economic outlook deteriorates.
Weakening Industrial Trends Fail to Prevent Pound Gains
The latest CBI industrial trends orders index proved discouraging, falling from -5 to -10 on the month as export orders fell to their lowest level in nearly three years. However, the Pound was still able to push higher across the board last night, even as a sense of political uncertainty continues to hang over the UK. As the OECD raised its 2019 growth forecast for the UK, even as it cut the global growth forecast, this gave investors some cause for confidence.
Further volatility is set for GBP exchange rates on the back of April’s UK consumer price index data, with forecasts pointing towards a fresh acceleration in inflation.
Euro Struggles to Capitalise on Rising Consumer Confidence
May’s Eurozone consumer confidence index bettered forecasts, strengthening from -7.9 to -6.5 and offering the Euro a boost. Although the index remains firmly within negative territory investors still took encouragement from the monthly uptick, which suggests lower levels of domestic anxiety. Even so, as the OECD lowered its German growth forecast for 2019 the appeal of the single currency remained somewhat sour.
When European Central Bank (ECB) President Mario Draghi speaks this afternoon the Euro could come under fresh pressure.
Home Sales Contraction Limits US Dollar Upside
US existing home sales failed to rebound as anticipated in April, delivering another contraction on the month as the housing sector continues to demonstrate signs of a slowdown. This disappointing showing helped to limit some of the strength of USD exchange rates last night, even as market risk appetite persisted. Although the US temporarily relaxed some of its restrictions on Chinese telecoms giant Huawei, though, the US Dollar struggled to make any significant gains against its rivals.
Ahead of tomorrow’s release of the Federal Open Market Committee (FOMC) meeting minutes for May any US Dollar strength could prove limited.
Rising Oil Prices Benefit Canadian Dollar
In the absence of any fresh Canadian data CAD exchange rates continued to follow the trend of the oil market, benefitting from ongoing optimism. Escalating tensions within the Middle East continue to fuel demand for oil, with markets betting on the prospect of a further decline in production in the months ahead. This helped to shore up the Canadian Dollar, especially as the strength of the US Dollar softened.
A stronger month of Canadian retail sales may encourage CAD exchange rates to strengthen further overnight.
Interest Rate Cut Bets Drive New Zealand Dollar Down
A solid month of New Zealand credit card spending was not enough to prevent NZD exchange rates slipping lower yesterday. While domestic consumers continued to spend the New Zealand Dollar was weighed down by the unexpectedly dovish comments from the RBA Governor. With the Reserve Bank of New Zealand (RBNZ) already biased towards the downside the prospect of an Australian interest rate cut sharply increased the risk of imminent monetary tightening.
Any slowdown in the first quarter retail sales data could easily add to the bearish outlook of the New Zealand Dollar this morning.
Data Releases
May 22nd 08:45 NZD Retail Sales ex Inflation (QoQ) (1Q) 0.6%
May 22nd 10:30 AUD Westpac Leading Index (MoM) (APR) -0.1%
May 22nd 17:30 EUR European Central Bank President Mario Draghi Speech
May 22nd 18:30 GBP Consumer Price Index (YoY) (APR) 2.2%
May 22nd 22:30 CAD Retail Sales (MoM) (MAR) 1.0%
May 23rd 04:00 USD Federal Open Market Committee Meeting Minutes (MAY)