RBA Interest Rate Cut Prompts Limited Australian Dollar Reaction
Following on from previous signals the Reserve Bank of Australia (RBA) cut interest rates to a fresh record low of 1.25% yesterday, responding to lacklustre unemployment data. As investors widely expected the move the ultimate impact on the Australian Dollar was limited, even though the risk of another 2019 rate cut remains. A decline in retail sales also failed to drag on AUD exchange rates, with markets encouraged by a more conciliatory tone of language on the US-China trade dispute from Chinese officials.
However, the Australian Dollar still looks vulnerable this morning if the first quarter gross domestic product eases on the year as forecast.
Pound Recovers Ground After Construction PMI Disappointment
Confidence in the outlook of the UK economy took a fresh blow as May’s construction PMI fell short of forecast. As Brexit-based uncertainty continued to weigh on business confidence the sector faced a sharp decline in workload, pushing the PMI down from 50.5 to 48.6. Although both the construction and manufacturing sectors are now known to have contracted last month this was not enough to drag the Pound lower against its rivals overnight.
If the corresponding services PMI also falls into contraction territory, though, the mood towards the Pound could sour sharply.
Falling Eurozone Inflation Diminishes Euro Appeal
The chances of the European Central Bank (ECB) returning to an optimistic outlook weakened further in the face of May’s Eurozone consumer price index data. After the stronger April figure investors were not surprised to see the headline inflation rate ease from 1.7% to 1.2%. However, this weaker showing suggests that inflationary pressure within the currency union is still struggling to build in spite of the ECB’s policies. A slight improvement in the Eurozone unemployment rate helped to limit the downside potential of the single currency last night, though.
Any softening in April’s Eurozone retail sales figures may add to the bearishness of EUR exchange rates today.
US Dollar Shakes Off Factory Orders Decline
April’s factory orders data failed to impress last night, showing a -0.8% decline on the month and adding to wider concerns over the health of the US manufacturing sector. Coupled with the ongoing escalation of the Trump administration’s belligerence on trade this encouraged market bets that the Federal Reserve could cut interest rates in the near future. While the underlying health of the US economy still looks weaker than investors would like, however, USD exchange rates held onto a steady footing.
A steady reading from tonight’s ISM non-manufacturing composite index may encourage greater demand for the US Dollar.
Weak Oil Price Limits Canadian Dollar Strength
Anxiety over the global growth outlook continued to limit the strength of the oil market yesterday, keeping Brent crude trending in the region of US$60 per barrel. Investors remain wary of the prospect of trade tensions continuing to escalate, keeping oil and the commodity-correlated Canadian Dollar on the back foot. With confidence in the outlook of the Canadian economy already dented this left CAD exchange rates struggling to find support.
As forecasts point towards a rebound in the first quarter labour productivity index, however, a rallying point may be in store for the Canadian Dollar tonight.
Improved Terms of Trade Index Bolsters New Zealand Dollar
The first quarter terms of trade index offered fresh encouragement to the New Zealand Dollar, showing growth of 1% on the quarter. This positive showing bolstered hopes that the New Zealand economy is shaking off the impact of global trade anxiety, diminishing the odds of a prolonged period of Reserve Bank of New Zealand (RBNZ) dovishness. Even a sharp decline in the latest Global Dairy Trade auction was not enough to dent NZD exchange rates.
Any general deterioration in market sentiment could still see the New Zealand Dollar lose its positive footing in the near term, though.
Data Releases
June 5th 11:30 AUD Gross Domestic Product (YoY) (1Q) 1.8%
June 5th 18:30 GBP Services PMI (MAY) 50.6
June 5th 19:00 EUR Eurozone Retail Sales (YoY) (APR) 1.5%
June 5th 22:30 CAD Labour Productivity (QoQ) (1Q) 0.4%
June 6th 00:00 USD ISM Non-Manufacturing Composite Index (MAY) 55.5