Australian Dollar Rebounds After RBA Interest Rate Cut
There was little surprise as the Reserve Bank of Australia (RBA) opted to cut interest rates to a fresh record low of 1% yesterday. As the move was widely telegraphed the initial negative impact on the Australian Dollar proved limited, even though Governor Philip Lowe left the possibility of further action on the table. Nevertheless, AUD exchange rates returned to an uptrend overnight thanks to the relative weakness of the US Dollar.
A widening of May’s trade balance may offer an additional boost to the Australian Dollar this morning, with markets likely to greet signs that the economy has shrugged off global trade anxiety.
UK Construction Sector Slump Weighs Down Pound
The mood towards Pound Sterling soured significantly last night after June’s UK construction PMI saw a sharp deterioration on the month, plunging from 48.6 to 43.1. As forecasts had pointed towards a modest uptick investors were caught off guard by this dramatic decline, which took the index to its lowest level in a decade. Although the construction sector only accounts for a small percentage of the UK gross domestic product this disappointing showing still weighed heavily on GBP exchange rates.
If the corresponding services PMI shows similar weakness this could see the Pound fall to fresh multi-month lows against its rivals.
Retail Sales Acceleration Boosts Euro
As German retail sales saw another solid acceleration on the year in May this encouraged the Euro to hold onto a positive footing overnight. Sales growth of 4% suggests that domestic consumer sentiment remains solid, in spite of increasing anxiety over the outlook of the global economy and persistent jitters over trade. Even though the latest Eurozone producer price index data proved disappointing this was not enough to knock the single currency off its uptrend.
Confirmation that the Eurozone services PMI picked up in June may encourage EUR exchange rates to extend their latest gains further.
Market Risk-Appetite Limits US Dollar Demand
In the wake of disappointing US construction and manufacturing sector data the US Dollar struggled to find much in the way of support last night. As markets remain confident that the Federal Reserve will cut interest rates again before the end of the year the potential for USD exchange rate gains remains limited. Hopes of a breakthrough in US-China trade relations, meanwhile, helped to shore up market risk appetite, to the detriment of the safe-haven US Dollar.
Any slowdown in tonight’s ISM non-manufacturing composite index could add to the bearish mood of USD exchange rates.
Canadian Dollar Shakes Off Muted Manufacturing PMI
A modest improvement in May’s manufacturing PMI offered some limited support to the Canadian Dollar, even though the sector remained in a state of contraction. As OPEC and its allies agreed to extend their current production-limiting agreement this shored up oil prices, boosting the commodity-correlated Canadian Dollar. Worries over the outlook of the Canadian economy remain, however, leaving CAD exchange rates vulnerable to downside pressure in the days ahead.
With forecasts pointing towards a widening of the Canadian trade deficit in May the potential for Canadian Dollar gains appears limited tonight.
Rising Building Permits Fail to Boost New Zealand Dollar
As building permits saw a solid increase on the month in may this bolstered confidence in the outlook of the New Zealand construction sector. However, this positive showing failed to offer any particular encouragement to NZD exchange rates yesterday after the RBA voted to cut interest rates. Now that the RBA has moved on monetary policy the Reserve Bank of New Zealand (RBNZ) appears under increased pressure to follow suit, leaving the New Zealand Dollar on a weaker footing.
In the absence of fresh New Zealand data today NZD exchange rates may struggle to recover their lost momentum.
Data Releases
July 3rd 11:30 AUD Balance of Trade (MAY) 5.2 billion
July 3rd 18:00 EUR Eurozone Services PMI (JUN F) 53.4
July 3rd 18:30 GBP Services PMI (JUN) 51.0
July 3rd 22:30 CAD Balance of Trade (MAY) -1.5 billion
July 4th 00:00 USD ISM Non-Manufacturing Composite Index (JUN) 56.0