Australian Dollar Benefits as PMIs Better Forecast
A solid showing from June’s Australian manufacturing and services PMIs offered a boost to AUD exchange rates ahead of the weekend. Confidence in the underlying health of the domestic economy improved, particularly benefitting from a strong improvement in the performance of the service sector. However, the Australian Dollar struggled to hold onto its positive footing as tensions between the US and Iran continued to escalate.
Comments from Reserve Bank of Australia (RBA) Governor Philip Lowe may put additional pressure on AUD exchange rates this morning.
Pound Slides After UK Public Sector Borrowing Increase
May’s UK public sector net borrowing figures failed to impress investors on Friday, leaving the Pound on a weaker footing. As borrowing clocked in at 5.1 billion this exceeded market forecasts, indicating a continued deterioration in the government’s finances. Coupled with ongoing anxiety over the possibility of a no-deal Brexit or a general election this gave GBP exchange rates a fresh downward push.
As the Conservative leadership contest enters its final phase the Pound looks set to remain on the back foot, with Boris Johnson still considered the frontrunner to succeed Theresa May.
Improved Eurozone PMIs Support Euro Recovery
The latest raft of Eurozone manufacturing and services PMIs largely bettered forecast ahead of the weekend, encouraging EUR exchange rates to recover some ground. Although the overall manufacturing index remained firmly within contraction territory this was overshadowed by a strong showing from the service sector. With the French economy showing a solid rebound at the end of the second quarter the mood towards the Euro naturally improved.
An uptick in June’s German IFO business climate index could encourage further EUR exchange rate gains, suggesting that the economic outlook is improving.
Underwhelming US PMIs Diminish US Dollar Upside
Both the US manufacturing and services PMIs disappointed forecasts in June, moving even closer to the neutral baseline of 50. With growth in the manufacturing sector stalling to a near-standstill USD exchange rates struggled to find much traction heading into the weekend. However, a stronger-than-expected surge in existing home sales helped to improve the appeal of the US Dollar in spite of the Federal Reserve’s dovish outlook.
Another negative reading from the Chicago Fed national activity index could prompt USD exchange rates to trend lower this evening.
Weak Retail Sales Weigh on Canadian Dollar
While oil prices remained elevated this was not enough to keep the Canadian Dollar on a stronger footing during Friday’s European session. Although Brent crude rose to a three-week high, driven by escalating Middle Eastern tensions, CAD exchange rates still faltered. This was due to the underwhelming nature of April’s retail sales data, which showed growth of just 0.1% on the month.
If oil markets fail to maintain their bullishness today the Canadian Dollar is likely to experience fresh selling pressure.
Risk Aversion Limits New Zealand Dollar Demand
Support for the New Zealand Dollar proved generally muted ahead of the weekend in the absence of any fresh domestic data. With market risk aversion picking up in the face of US-Iran tensions NZD exchange rates slipped, even though the Fed remains on track for an interest rate cut. As markets generally favoured safe-haven assets this put the New Zealand Dollar on the back foot.
Ahead of tomorrow’s New Zealand trade data the potential for a NZD exchange rate rally appears limited.
Data Releases
June 24th 09:30 AUD RBA Governor Philip Lowe Speaks
June 24th 18:00 EUR German IFO Business Climate Index (JUN) -0.37
June 24th 22:30 USD Chicago Fed National Activity Index (MAY) 4.8