Australian Dollar Shakes off RBA’s Willingness to Cut Interest Rates
Although the Reserve Bank of Australia’s (RBA) latest set of meeting minutes showed signs of dovishness this failed to weigh down the Australian Dollar. While the RBA indicated a willingness to cut interest rates further if the evidence suggests that such a move would boost the economy investors still saw limited odds of imminent action. With policymakers expected to remain on hold at their next meeting AUD exchange rates were able to recover some ground.
A lack of movement from July’s Westpac leading index may limit the potential for further Australian Dollar gains, though.
Irish Backstop Impasse Drags on Pound
An improvement in August’s CBI industrial trends orders index was not enough to shore up the Pound overnight. While the index strengthened from -34 to -13 this still signalled a decline in factory orders, highlighting the impact of ongoing Brexit-based uncertainty. A rapid escalation in rhetoric over the Irish backstop fuelled GBP exchange rate selling pressure as the risk of a no-deal scenario appeared to increase.
If UK public sector net borrowing declines on the month this could offer the Pound a rallying point this evening.
Prospect of Italian Election Dampens Euro Appeal
Support for the Euro evaporated as Italian Prime Minister Giuseppe Conte resigned, confirming the widely-expected collapse of the coalition government. The prospect of a fresh general election and ongoing political turmoil weighed heavily on the single currency, with the right-wing League looking set to increase its vote share. This overshadowed a solid set of Eurozone construction output figures, given existing concerns over the outlook of the Italian economy.
Any fresh political developments could provoke additional volatility for EUR exchange rates in the near future.
Bets on Dovish Fed Outlook Weigh on US Dollar
With the Trump administration expressing displeasure over the current strength of USD exchange rates investors saw little reason to favour the US Dollar last night. As the White House continues to push for the Federal Reserve to cut interest rates imminently the mood towards the US Dollar has soured. This all heightened anticipation ahead of the Federal Open Market Committee (FOMC) meeting minutes, leaving USD exchange rates vulnerable to selling pressure.
Markets could also see volatility in response to comments from central bankers at the Jackson Hole economic policy symposium.
Weak Manufacturing Sales Offer Little Support to Canadian Dollar
As manufacturing sales saw a smaller contraction than forecast this helped to limit the weakness of the Canadian Dollar. However, the -1.2% decline in sales still raised concerns over the underlying health of the Canadian economy. With domestic demand appearing muted the case for Bank of Canada (BOC) policy easing seemed to increase, to the detriment of CAD exchange rates.
With forecasts pointing towards the consumer price index easing on the year demand for the Canadian Dollar is unlikely to pick up in the near future.
New Zealand Dollar Remains Positive in spite of Dairy Decline
Another fortnightly decline at the Global Dairy Trade auction, which saw prices fall -0.2%, failed to drag the New Zealand Dollar lower. Even though dairy prices remained under pressure, signalling weakness within this major sector of the New Zealand economy, NZD exchange rates still pushed higher overnight. Speculation that the Fed could cut interest rates again sooner rather than later helped to shore up the New Zealand Dollar, in spite of lingering global trade worries.
Any fresh escalation in trade tensions between the US and China could see NZD exchange rates stumble, however.
Data Releases
August 21st 10:30 AUD Westpac Leading Index (MoM) (JUL) 0%
August 21st 13:00 NZD Credit Card Spending (YoY) (JUL)
August 21st 18:30 GBP Public Sector Net Borrowing (JUL) -3.6 billion
August 21st 22:30 CAD Consumer Price Index (YoY) (JUL) 1.7%
August 22nd 04:00 USD Federal Open Market Committee Meeting Minutes