Slowing Australian Economy Adds to RBA Rate Cut Odds
Confidence in the outlook of the Australian economy diminished further yesterday as the first quarter gross domestic product eased from 2.3% to 1.8% on the year. Although the slowdown was largely anticipated investors were still discouraged by the data. With global trade tensions looking set to weigh on growth in the months ahead the prospect of a greater loss of momentum weighed heavily on AUD exchange rates, with the odds of another Reserve Bank of Australia (RBA) interest rate cut rising.
Even so, a widening of the Australian trade surplus for April may encourage the Australian Dollar to recover some ground this morning.
Resilient Service Sector Boosts Pound
May’s UK services PMI bettered forecasts to strengthen from 50.4 to 51.0, shaking off the sluggishness that afflicted other areas of the economy last month. This stronger showing helped to keep the composite PMI from falling into contraction territory, although confidence in the underlying health of the UK economy remains limited. Another sharp month of decline in new car sales limited the upside potential of GBP exchange rates, highlighting the continued sense of consumer anxiety.
Comments from Bank of England (BoE) Governor Mark Carney could offer a rallying point to the Pound, provided he maintains a more optimistic stance on the economic outlook.
Euro Weakens on Prospect of Fresh Italian Debt Conflict
Although May’s Eurozone services PMI saw an upward revision from the initial flash estimate this failed to give the Euro any significant boost overnight. The mood towards the single currency instead deteriorated in response to the European Commission’s decision to recommend disciplinary proceedings against the Italian government. Markets reacted poorly to the prospect of a fresh dispute over the Italian debt, leaving EUR exchange rates on a generally weaker footing.
Further Euro loses look likely today if the European Central Bank (ECB) adopts a dovish policy outlook as expected.
Surprisingly Weak Jobs Data Drags US Dollar Down
USD exchange rates came under pressure last night after May’s ADP employment change figure fell significantly short of forecast. As only 27,000 new jobs were added to the private sector this raised concerns that Friday’s non-farm payrolls report could see similar weakness. The disappointing jobs data offers fresh evidence of a weakening US economy, suggesting that the impact of ongoing trade disputes is biting. With markets pricing in increasing odds of a Federal Reserve interest rate cut the US Dollar naturally softened.
Any widening of the US trade deficit tonight may encourage further US Dollar selling.
Lacklustre Labour Productivity Weighs on Canadian Dollar
Canadian labour productivity failed to rebound as far as forecast in the first quarter, clocking in at 0.3% rather than 0.4%. With confidence in the outlook of the Canadian economy already limited this left CAD exchange rates on the back foot overnight. Continued weakness within the oil market also weighed on the Canadian Dollar as global trade tensions limited investor confidence and commodity prices.
As long as worries over the global growth outlook persist the Canadian Dollar may struggle to recover its lost ground.
Shift Towards Looser Global Monetary Policy Benefits New Zealand Dollar
With central banks around the world taking an increasingly dovish stance on monetary policy the New Zealand Dollar has strengthened. Although investors still expect the Reserve Bank of New Zealand (RBNZ) to cut interest rates further in the coming months the prospect of global monetary loosening gave NZD exchange rates a boost. The disappointing nature of the latest US jobs data also offered the New Zealand Dollar cause for confidence.
An uptick in the ANZ commodity price index could encourage NZD exchange rates to extend their uptrend further this morning.
Data Releases
June 6th 11:00 NZD ANZ Commodity Price Index (MAY)
June 6th 11:30 AUD Trade Balance (APR) 5 billion
June 6th 21:45 EUR European Central Bank Rate Decision 0.0%
June 6th 22:30 USD Trade Balance (APR) -50.6 billion