US Dollar Rallies as Market Sentiment Sours

Australian Dollar (AUD) Slips in Spite of Unchanged RBA Policy Outlook

The Australian Dollar (AUD) fell out of favour in the wake of the Reserve Bank of Australia’s (RBA) May policy announcement.

As the RBA’s message remained largely unchanged, this limited its impact on the ‘Aussie’, even as policymakers expressed a degree of optimism in the economic outlook. The strength of AUD exchange rates was further diminished by a surprise narrowing of March’s trade surplus, which suggests that trade conditions deteriorated at the end of the first quarter.

With forecasts pointing towards a slowdown in building permits growth, this may add to the weakness of AUD exchange rates this morning.

Pound (GBP) Benefits from Improved UK Manufacturing PMI

The Pound (GBP) gained some limited support on the back of an upwardly revised finalised April manufacturing PMI.

With the final reading lifted to 60.9, this suggests that the sector started the second quarter on a much stronger footing, encouraging hopes of a greater economic recovery to come.

Growing anticipation for the Bank of England’s (BoE) May policy announcement could well keep GBP exchange rates on the back foot in the near term.

Euro (EUR) Under Pressure as French Budget Deficit Grows

The Euro (EUR) saw a mixed performance in the wake of a sharply widened French budget deficit last night.

As the deficit widened from €-47.47 billion to €-60.07 billion in March, this offered fresh evidence of the deteriorating state of the Eurozone’s major economies. In the absence of any encouraging domestic data, the single currency struggled to make any particular gains, only benefiting from the relative weakness of some of its rivals.

However, confirmation that the Eurozone service sector returned to a state of growth in April may help to support demand for the Euro.

US Dollar (USD) Supported amid Risk-Off Trade

The US Dollar (USD) held onto a positive footing overnight as safe-haven demand increased amid souring market sentiment.

USD exchange rates held their uptrend as March’s factory orders delivered a solid rebound on the month, offering fresh evidence of the strength of the manufacturing sector.

With forecasts pointing towards another solid increase in the ADP employment change figure for April, the appeal of the US Dollar could strengthen further.

Canadian Dollar (CAD) Limited as Trade Balance Falls into Deficit

The Canadian Dollar (CAD) struggled to make any gains in the wake of the March trade balance unexpectedly falling into a state of deficit.

While forecasts had pointed towards a narrowed trade surplus, investors were caught off guard by the plunge into negative territory, a decline which suggests a sharp deterioration in trade conditions. However, CAD exchange rates saw only limited selling pressure last night thanks to a stronger uptick in March’s building permits figure.

Comments from Bank of Canada (BoC) Governor Tiff Macklem could provoke some additional volatility for the Canadian Dollar tonight.

New Zealand Dollar (NZD) Softens as Market Confidence Declines

The New Zealand Dollar (NZD) faltered on Tuesday thanks to a general deterioration in market risk appetite.

As investors found fresh incentive to favour the safe-haven US Dollar over its risk-sensitive rivals the ‘Kiwi’ naturally came under pressure. In the absence of any fresh New Zealand economic data there was little potential for NZD exchange rates to make any gains yesterday.

Evidence of greater resilience within the New Zealand labour market could offer the New Zealand Dollar a leg up this morning, though.

Data Releases

08:45 NZD Unemployment Rate (Q1) 4.9%
11:30 AUD Building Permits (Mar) 3%
18:00 EUR Eurozone Services PMI (Apr F) 50.3
22:15 USD ADP Employment Change (Apr) 810,000

Louisa Heath