Australian Dollar Strengthens on Leading Index Uptick
A modest improvement in the Westpac leading index encouraged the Australian Dollar to gain ground yesterday. As the index returned to positive territory, clocking in at 0.1%, this fuelled hopes that the Australian economy is picking up. Even though trade relations between the US and China continued to sour this was not enough to keep AUD exchange rates from trending higher. With markets bracing for greater Federal Reserve dovishness the appeal of the higher-yielding Australian Dollar strengthened.
With August’s manufacturing PMI forecast to show a slight loss of momentum on the month, however, AUD exchange rates may struggle to maintain a positive footing.
Underwhelming Public Finances Limit Pound Appeal
As the UK public sector net borrowing figure fell short of forecast this left the Pound on a weaker footing. GBP exchange rates slipped lower across the board as the risk of the UK missing its borrowing targets for the current fiscal year increased. With government spending outpacing the month’s increase in income market anxiety over the nation’s financial health picked up, prompting a fresh round of selling pressure.
Unless the CBI reported retail sales index edges closer to positive growth the mood towards the Pound is likely to remain bearish today.
Temporary Lull in Italian Political Drama Benefits Euro
The Euro found some support overnight amid hopes that Italy could still avoid a fresh general election. With ministers of the right-wing League remaining in their positions, in spite of leader Matteo Salvini’s resignation, an immediate collapse of the government was forestalled. Although Salvini indicted that his ministers could still approve the 2020 budget, however, this may not be enough to keep the coalition alive for much longer.
Fresh signs of weakness in August’s Eurozone manufacturing and services PMIs may help to fuel a Euro sell-off, adding to lingering political jitters.
US Dollar Braces for Increased Federal Reserve Dovishness
Demand for the US Dollar remained generally limited ahead of the release of the Federal Open Market Committee’s (FOMC) July meeting minutes. With markets widely anticipating an interest rate cut at the Fed’s next policy meeting USD exchange rates were left exposed to downside pressure. As the White House continued to criticise the Fed’s recent policy decisions investors saw little reason to buy into the US Dollar.
Comments from Fed Chair Jerome Powell could dampen the appeal of the US Dollar further if he signals an increased sense of dovishness.
Steady Canadian Inflation Boosts CAD Confidence
July’s Canadian consumer price index data bettered forecast, offering the Canadian Dollar a leg up against its rivals. As the headline inflation rate held steady at 2.0% on the year, defying expectations of a decline, the odds of the Bank of Canada (BOC) remaining on hold improved. This helped to boost CAD exchange rates, especially as global monetary policy still looks set to weaken on the whole.
However, any contraction in June’s wholesale trade sales figures could still dent the Canadian Dollar.
Credit Card Spending Decline Weighs on New Zealand Dollar
Monthly credit card spending showed a sharp decline in July, weighing on the New Zealand Dollar. As spending contracted -1.8% this pointed towards a weakening in domestic confidence, fuelling worries over the economic outlook. With global trade tensions continuing to mount the risk of a greater slowdown in New Zealand growth increased, dragging on NZD exchange rates.
Without the support of fresh domestic data the New Zealand Dollar is expected to remain on the back foot ahead of the weekend.
Data Releases
August 22nd 09:00 AUD Manufacturing PMI (AUG) 51
August 22nd 18:00 EUR Eurozone Manufacturing PMI (AUG) 46.2
August 22nd 18:00 EUR Eurozone Services PMI (AUG) 53.0
August 22nd 20:00 GBP CBI Reported Retail Sales (AUG) -15
August 22nd 22:30 CAD Wholesale Trade Sales (MoM) (JUN) -0.1%
August 23rd 00:00 USD Leading Index (JUL) 0.2%