Australian Services Contraction Drags on AUD Exchange Rates
The appeal of the Australian Dollar diminished in response to August’s services PMI, which unexpectedly slipped into a state of contraction. As the index clocked in at 49.2, falling from the previous month’s solid reading of 52.3, this raised concerns over the health of the service sector. This deterioration also pushed the composite PMI below the neutral baseline of 50, suggesting that the economy lost momentum in August.
Ahead of Reserve Bank of Australia (RBA) Governor Philip Lowe’s appearance at the Jackson Hole Symposium over the weekend AUD exchange rates may struggle to find a rallying point.
Retail Sales Slump to Eleven-Year Low
August’s CBI reported retail sales index defied forecasts to slump from -16 to -49, hitting its lowest level since December 2008. This sharp decline in retail activity prompted fresh anxiety among investors, with lower levels of consumer spending likely to limit economic activity. However, the Pound soon shook off this negative data as markets reacted to the latest Brexit developments. As German Chancellor Angela Merkel noted that there is still time to resolve the Irish backstop issue GBP exchange rates returned to an uptrend.
Even so, this latest bout of Brexit-based optimism could prove short-lived thanks to Boris Johnson’s insistence on abandoning the backstop entirely.
Dovish ECB Minutes Keep Euro Under Pressure
The European Central Bank’s (ECB) July meeting minutes confirmed that policymakers are leaning towards implementing a ‘package’ of stimulus at their September meeting. Signs of dissent were apparent, however, with some policymakers pushing back against the suggestion of redefining the 2% inflation target. While markets had already priced in the possibility of imminent monetary loosening the nature of the minutes still put a dampener on the Euro.
Without the release of any fresh Eurozone data today the single currency may remain on the back foot.
US Dollar Shakes off Manufacturing Contraction
A surprise contraction in August’s manufacturing PMI was not enough to dent the US Dollar. Although the index slipped to 49.9 the impact of the figure proved limited, with markets generally favouring the ISM manufacturing index. Signs that the Federal Reserve is not in a hurry to raise interest rates helped to lift USD exchange rates, even as political pressure on the central bank intensified.
If Fed Chair Jerome Powell also signals a willingness to leave monetary policy on hold in his latest comments the US Dollar could strengthen further.
Wholesale Trade Sales Uptick Lifts Canadian Dollar
As wholesale trade sales showed an unexpected improvement on the month this encouraged the Canadian Dollar to gain ground against some of its weaker rivals. A modest uptick of 0.6% was not enough to reverse the previous month’s decline, though, allowing concerns over the domestic outlook to persist. Stronger oil prices also helped to support CAD exchange rates in the wake of a sharper-than-expected decline in US crude oil inventories.
However, the Canadian Dollar looks vulnerable ahead of June’s retail sales data, which is forecast to show a fresh decline.
New Zealand Dollar Struggles Ahead of Retail Sales Data
Demand for the New Zealand Dollar remained limited yesterday as investors continued to lack any significant incentive to favour the risk-sensitive currency. As Fed policymakers displayed some reticence over raising interest rates again NZD exchange rates saw further losses. Lingering concerns over the health of global trade also helped to fuel NZD selling pressure.
Weakening growth in retail sales in the second quarter could see the New Zealand Dollar shedding further ground this morning.
Data Releases
August 23rd 08:45 NZD Retail Sales ex Inflation (QoQ) (2Q) 0.2%
August 23rd 22:30 CAD Retail Sales (MoM) (JUN) -0.3%
August 24th 00:00 USD Fed Chair Powell Speaks at Jackson Hole
August 25th 02:25 AUD Reserve Bank of Australia Governor Lowe Speaks at Jackson Hole