Slide in Business Investment Drives Australian Dollar Lower
Private capital expenditure fell short of forecasts in the first quarter, delivering a surprise -1.7% contraction as Australian business confidence faded. This naturally diminished the appeal of the Australian Dollar, suggesting that economic growth is likely to ease further in the months ahead thanks to businesses winding back on investment. Another month of sharp decline in building approvals added to the bearish mood of AUD exchange rates.
A steady reading from April’s private sector credit figures is unlikely to be enough to shore up the Australian Dollar ahead of the weekend.
UK Car Production Slump Limits Pound Appeal
News that UK car production dramatically stalled in April, falling -44.5% on the year, kept the Pound on a weak footing overnight. While this decline is largely attributable to the factory shutdowns manufacturers imposed as a precaution around the original Brexit deadline investors were still discouraged by the data. Confidence in the underlying health of the UK economy remains limited, especially as political uncertainty over Brexit persists.
However, with a modest uptick forecast for May’s GfK consumer confidence index the Pound could find a measure of support this morning.
Spanish Inflation Dip Weighs on Euro
Support for the Euro proved limited last night as the Spanish inflation rate saw a sharp easing in May. With the headline consumer price index weakening from 1% to just 0.2% on the year confidence in the wider inflationary outlook of the Eurozone diminished. This weaker reading raised the odds of a disappointing German inflation figure, leaving the single currency with limited traction against its rivals.
If the German consumer price index eases as forecast this may see EUR exchange rates trending sharply lower across the board.
US Dollar Benefits as Advance Goods Trade Balance Betters Forecast
As the advance goods trade deficit saw a smaller widening on the month than forecast the mood towards the US Dollar improved. While signs continue to point towards weaker trade conditions USD exchange rates still benefitted from the general sense of market risk aversion. A downward revision to the first quarter gross domestic product was also not enough to prevent the US Dollar gaining fresh ground overnight.
If April’s personal consumption expenditure core reading holds steady on the year this could offer USD exchange rates an additional boost, given that the measure remains the Federal Reserve’s preferred gauge of inflation.
Canadian Dollar Downside Limited in Spite of Oil Weakness
Oil prices continued to weaken during the European session, putting pressure on the commodity-correlated Canadian Dollar. However, after the Bank of Canada’s (BOC) more positive commentary at its May policy meeting the downside potential of CAD exchange rates has eased. Coupled with a better-than-expected first quarter current account balance this encouraged the Canadian Dollar to recover some of its recent losses.
A further boost could be in store for CAD exchange rates tonight if Canada’s gross domestic product data shows the economy picking up momentum.
Building Permit Contraction Encourages New Zealand Dollar Weakness
New Zealand building permits saw a fresh decline in April, adding to concerns over the health of the construction sector and housing market. This underwhelming data gave investors fresh cause for worry over the outlook of the New Zealand economy, especially as the Reserve Bank of New Zealand (RBNZ) could still cut interest rates in the near future. As market risk appetite generally diminished this left NZD exchange rates to trend lower.
An improvement in the ANZ consumer confidence index could help to put a floor under the New Zealand Dollar today.
Data Releases
May 31st 08:00 NZD ANZ Consumer Confidence Index (MAY)
May 31st 09:01 GBP GfK Consumer Confidence Index (MAY) -12
May 31st 11:30 AUD Private Sector Credit (YoY) (APR) 3.8%
May 31st 22:00 EUR German Consumer Price Index (YoY) (MAY) 1.6%
May 31st 22:30 CAD Gross Domestic Product (YoY) (MAR) 1.2%
May 31st 22:30 USD Personal Consumption Expenditure Core (YoY) (APR) 1.6%