Australian Dollar Strengthens on Improved Inflation Estimate

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Headlines

  • Stronger Retail Sales and Inflation Boosted AUD Exchange Rates – Gains likely to diminish ahead of RBA meeting
  • Unimpressive UK Construction PMI Weighed on Pound – Markets hope to see a stronger showing from the service sector
  • US Factory Orders Contraction Added to US Dollar Weakness – Risk appetite limited appeal of USD
  • Weaker Producer Prices Failed to Dent Euro Rates – Single currency shrugs off disappointing data


Australian Dollar

Confidence in the Australian Dollar picked up at the start of the week as the latest raft of domestic data bettered expectations. Markets were encouraged by a solid uptick in April’s retail sales data alongside strengthening business figures and a stronger TD Securities inflation estimate. All in all, this painted a generally positive picture of the health of the Australian economy, giving investors incentive to pile into the ‘Aussie’ yesterday.

However, AUD exchange rates are likely to come under pressure today as markets brace for the latest Reserve Bank of Australia (RBA) policy decision.

Sterling

May’s UK construction PMI held steady on the month as the headline figure remained at 52.5, defying forecasts of a downturn. Even so, this was not enough to shore up the Pound during Monday’s European session thanks to the less optimistic underlying nature of the report. As business optimism fell to a seven-month low this dented confidence in the economic outlook, leaving GBP exchange rates on a generally weaker footing.

If today’s services PMI shows an improvement on the month, though, this could offer Sterling a solid rallying point.

Euro

Although April’s Eurozone producer price index figures fell short of forecast this failed to prevent EUR exchange rates making gains yesterday. While producer prices stagnated on the month investors were quick to shrug off the data, still encouraged by easing political tensions within the Eurozone. With the new Italian government in place the threat of a fresh Eurozone crisis appears to have dissipated, even though there is a risk that the populist coalition will clash with the EU over budget restrictions.

With forecasts pointing towards solid growth in Eurozone retail sales in April the mood towards the Euro could remain bullish.

US Dollar

An unexpectedly sharp contraction in US factory orders left USD exchange rates on a weaker footing overnight. With April’s durable goods orders figure also confirmed to have dropped significantly on the month confidence in the US economy faltered. This gave investors fresh incentive to sell out of the US Dollar, particularly as markets continued to favour higher-yielding assets even in the face of the latest uncertainties over the global trade outlook.

A strong showing from May’s ISM non-manufacturing composite index could see the US Dollar quickly recovering its lost ground, however.

Canadian Dollar

Even with market risk appetite strengthening the Canadian Dollar started to slip back yesterday, dragged down by weaker oil prices. While signs point towards the OPEC-led production limiting agreement remaining in place for some time to come the market remains pressured by rising US output. In the wake of the US decision to impose steel and aluminium tariffs on Canada there was little to prevent CAD exchange rates trending lower.

If worries over US protectionism continue to mount this is likely to keep the Canadian Dollar under pressure this week.

New Zealand Dollar

With investors largely shrugging off concerns over the prospect of a US-instigated trade war the New Zealand Dollar was able to push higher against many of the majors. As markets remain optimistic that the US will pull back from the brink, using its protectionist measures merely as a negotiation tactic, NZD exchange rates benefitted.

An uptick in prices at the latest Global Dairy Trade auction could give the ‘Kiwi’ an additional boost today.


Data Released

June 5th 14:30 AUD Reserve Bank of Australia Rate Decision 1.50%
June 5th 18:30 GBP Services PMI (MAY) 53.0
June 5th 19:00 EUR Eurozone Retail Sales (YoY) (APR) 1.7%
June 6th 00:00 USD ISM Non-Manufacturing Composite (MAY) 57.6

Post by TorFX

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