Australian Dollar Down as Dovish RBA Rules Out Odds of Imminent Rate Hike

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Headlines

  • Dovish RBA Outlook Limited Australian Dollar Demand – Policymakers set to leave interest rates on hold for longer
  • Weaker-Than-Forecast German GDP Failed to Dent EUR Exchange Rates – Overall Eurozone growth remains steady
  • Improved Manufacturing Index Boosted US Dollar – USD still vulnerable to downside pressure from underwhelming data
  • Canadian Dollar Bullishness Faltered After Surprise Home Sales Contraction – Oil markets maintain solid gains


Australian Dollar

Confidence in the Australian Dollar deteriorated further on Tuesday, reacting bearishly to the Reserve Bank of Australia’s (RBA) May meeting minutes. Investors were not impressed by the relatively dovish nature of the minutes, which noted that there is not a strong case for any near-term adjustment of monetary policy. With interest rates looking set to remain on hold for the foreseeable future the appeal of the ‘Aussie’ naturally weakened.

If the Westpac consumer confidence index shows further softening in May this is likely to encourage AUD exchange rates to extend their downtrend.

Sterling

March’s UK wage data proved rather underwhelming in nature, with growth in average weekly earnings dipping from 2.8% to 2.6% in line with forecasts. This was matched by a weakening in productivity during the first quarter, giving investors little cause for confidence in the outlook of the domestic economy. As a result markets continued to debate the odds of the Bank of England (BoE) raising interest rates in the coming months, limiting the upside potential of Sterling.

In the absence of any fresh domestic data the mood towards the Pound is likely to deteriorate today.

Euro

Even though the first quarter German gross domestic product proved weaker than anticipated, halving from 0.6% to 0.3% on the quarter, this failed to particularly weigh down the Euro. This weaker showing was offset by strong results from other Eurozone nations, such as Finland and Poland. As a result, the overall Eurozone gross domestic product held steady at 0.4% on the quarter, keeping a floor under EUR exchange rates.

Comments from European Central Bank (ECB) President Mario Draghi could put pressure on the Euro, however, if he maintains a relatively dovish policy outlook.

US Dollar

A surprise uptick in the Empire manufacturing index encouraged the US Dollar to rally strongly overnight. This stronger showing bolstered confidence in the outlook of the US manufacturing sector, suggesting that growth will continue to pick up. While growth in advance retail sales eased somewhat in April this was not enough to prevent USD exchange rates pushing sharply higher across the board.

However, weakness from tonight’s building permits and industrial production figures could knock some of the wind out of the US Dollar’s sails.

Canadian Dollar

As Canadian existing home sales saw a sharp and unexpected contraction on the month in April CAD exchange rates went into reverse. With sales down -2.9% on the month this painted a rather bleak picture of the domestic housing market, discouraging confidence in the health of the wider economy. Even though oil prices continued their bullish run this was not enough to shore up the Canadian Dollar last night.

A softer manufacturing sales figure may encourage CAD exchange rates to shed further ground this evening.

New Zealand Dollar

A solid uptick in prices at the latest Global Dairy Trade auction encouraged the New Zealand Dollar to make gains against many of the majors. Markets welcomed this latest rebound in dairy prices, even though it remains to be seen just how long-lived this trend could be. While marker risk appetite generally deteriorated this failed to dampen the bullishness of NZD exchange rates yesterday.

Even so, the ‘Kiwi’ looks vulnerable to any further weakening in market sentiment in the near term.

Data Released

May 16th 10:30 AUD Westpac Consumer Confidence (MAY) 
May 16th 22:00 EUR European Central Bank President Draghi Speech 
May 16th 22:30 CAD Manufacturing Sales (MoM) (APR) 1.0%
May 16th 22:30 USD Building Permits (MoM) (APR) -2.3%

Post by TorFX

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