Inflation Uptick Buoys Australian Dollar
Confidence in the Australian Dollar picked up yesterday as the second quarter consumer price index bettered forecasts, accelerating from 1.3% to 1.6%. This sharp uptick in inflationary pressure on the year suggests that domestic price pressures are stronger than previously thought, limiting the case for the Reserve Bank of Australia (RBA) to cut interest rates in the near future. While worries over US-China trade relations remained this was not enough to dampen the appeal of the Australian Dollar.
However, if the latest manufacturing PMI remains in a state of contraction this could leave AUD exchange rates on the back foot this morning.
Pound Finds Reprieve on Improved Consumer Confidence Index
Market anxiety over Brexit temporarily eased last night, offering the Pound some breathing room. GBP exchange rates were able to recover some of their recent losses, capitalising on a better-than-expected GfK consumer confidence index reading. Even so, while domestic confidence picked up in July this reading does not take the recent change in government into account, suggesting that a fresh decline could be in store next month.
Ahead of the Bank of England’s (BoE) policy announcement GBP exchange rates are likely to soften, with markets wary of the prospect of increased policymaker dovishness.
Weak Retail Sales Dampen Euro Appeal
An unexpected decline in German retail sales left the Euro under pressure last night, with confidence in the outlook of the Eurozone’s powerhouse economy continuing to diminish. Although the Eurozone unemployment rate saw an improvement, falling to an eleven-year low, this was not enough to shore up EUR exchange rates. As growth across the currency union showed fresh signs of slowing the mood towards the single currency soured.
Confirmation that July’s raft of Eurozone manufacturing PMIs remained in negative territory could keep the Euro biased to the downside today.
US Dollar Falters on Disappointing Manufacturing Performance
The Chicago purchasing manager index defied expectations in July, easing from 49.7 to 44.4 rather than returning to a state of positive growth. This offered fresh evidence that the US manufacturing sector is slowing in response to ongoing global trade tensions and US tariffs on Chinese products. With investors bracing for greater signs of Federal Reserve dovishness there was little incentive to support the US Dollar during yesterday’s European session.
Unless the ISM manufacturing index shows a solid improvement on the month the appeal of the US Dollar could diminish further this evening.
Better-than-Expected Growth Data Supports Canadian Dollar
While May’s Canadian gross domestic product data surprised to the upside CAD exchange rates struggled to capitalise on this. There was still some disappointment that growth had slowed from 1.6% to 1.4% on the year, suggesting that the economic growth in the second quarter could prove lacklustre. Even so, with market risk appetite temporarily easing the Canadian Dollar found support against some of the majors.
Another weak showing from the Canadian manufacturing PMI may encourage CAD exchange rates to trend lower once again, though.
Crumbling Business Confidence Drags Down New Zealand Dollar
The New Zealand Dollar fell further out of favour yesterday as the ANZ business confidence index moved deeper into negative territory. As the index weakened from -38.1 to -44.3 this naturally undermined confidence in the outlook of the New Zealand economy, pointing towards a continued slowdown. This put NZD exchange rates on a weaker footing, even as the US Dollar faltered.
Without the support of fresh domestic data today the New Zealand Dollar could struggle to regain any of its losses in the near term.
Data Releases
August 1st 08:30 AUD Manufacturing PMI (JUL) 49
August 1st 18:00 EUR Eurozone Manufacturing PMI (JUL F) 46.4
August 1st 21:00 GBP Bank of England Rate Decision 0.75%
August 1st 23:30 CAD Manufacturing PMI (JUL) 49.5
August 2nd 00:00 USD ISM Manufacturing Index (JUL) 52.0