Lack of RBA Action Benefits Australian Dollar
As the Reserve Bank of Australia (RBA) left interest rates on hold at its September policy meeting the mood towards the Australian Dollar improved. Investors took encouragement from Governor Philip Lowe’s accompanying comments, which acknowledged the recent improvement in the housing market. With the RBA looking set to maintain a cautiously neutral policy bias in the near future AUD exchange rates found a rallying point.
The appeal of the Australian Dollar could strengthen further this morning as forecasts point towards a solid uptick in the second quarter gross domestic product.
Parliamentary Drama Fuels Pound Volatility
The Pound saw a fresh bout of volatility last night as parliament reconvened from its summer recess. As markets saw an increasing risk of a snap general election GBP exchange rates came under renewed pressure, falling to fresh multi-week lows. However, some of these losses were recovered overnight as MPs pushed ahead with an emergency session on the issue of Brexit.
Further weakness could be in store for the Pound if August’s UK services PMI fails to show positive growth on the month.
Mixed Eurozone Producer Price Index Dampens Euro Appeal
Although the Eurozone producer price index showed an improvement on the month in July this failed to offer the Euro any particular support. As the yearly measure saw a slowdown this still stoked concerns that inflationary pressure within the currency union is failing to pick up. As a result, the likelihood of the European Central Bank (ECB) delivering on expectations of significant monetary loosening increased further.
A sharp monthly decline in Eurozone retail sales could add to the bearish mood of the single currency.
US Dollar Stumbles After Surprise Manufacturing Contraction
Confidence in the underlying health of the US economy deteriorated last night as August’s ISM manufacturing index unexpectedly fell into contraction territory. Rather than seeing a modest increase as forecast, the index dipped from 51.2 to 49.1, signalling a slowdown. This weakness suggests that the ongoing US-China trade dispute has had a negative impact on US manufacturing activity, raising the risk of the economy having lost momentum.
Any widening of the US trade deficit could see the US Dollar fall further out of favour with investors tonight.
Manufacturing Sector Softness Limits Canadian Dollar Support
August’s manufacturing PMI offered investors little cause for optimism, falling from 50.2 to 49.1. This confirmation that the Canadian manufacturing sector remains in a state of weakness saw the Canadian Dollar trending lower. However, the relative softness of its rivals and a steady leading indicator reading helped to limit the downside potential of CAD exchange rates for the time being.
With the Bank of Canada (BOC) expected to leave interest rates on hold at its latest meeting, though, the mood towards the Canadian Dollar could improve.
New Zealand Dollar Strengthens Ahead of Commodity Price Index
In the absence of any domestic developments the New Zealand Dollar benefitted from the weakness of many of the other majors. The decline of the US Dollar helped to shore up the risk-sensitive NZD, even as anxiety over the global trade outlook remains. As the RBA opted to leave interest rates on hold this also limited the pressure on the Reserve Bank of New Zealand (RBNZ) to deliver further interest rate cuts this year.
Unless August’s ANZ commodity price index bounces back from the previous month’s contraction, though, NZD exchange rates are likely to falter today.
Data Releases
September 4th 11:00 NZD ANZ Commodity Price Index (AUG)
September 4th 11:30 AUD Gross Domestic Product (YoY) (2Q) 1.8%
September 4th 18:30 GBP Services PMI (AUG) 51
September 4th 19:00 EUR Eurozone Retail Sales (MoM) (JUL) -0.6%
September 4th 22:30 USD Balance of Trade (JUL) -53.5 billion
September 5th 00:00 CAD Bank of Canada Rate Decision 1.75%