Hopes of Extended BoE Term for Carney Bolster Pound

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Headlines

  • RBA Maintained Cautiously Optimistic Outlook – Australian Dollar losses in store if second quarter growth weakens
  • Pound Boosted as BoE Governor Carney Hints at Extended Term – GBP exchange rates vulnerable to poor services PMI
  • Strong US Manufacturing Sector Encouraged US Dollar Gains – Confidence in US economic outlook remains high
  • Canadian Dollar Softened Ahead of BOC Rate Decision – Greater caution may weigh heavily on CAD


Australian Dollar

As anticipated, the Reserve Bank of Australia (RBA) opted to leave interest rates on hold once again at its September policy meeting. This decision came as little surprise to investors, limiting the ultimate impact on the Australian Dollar yesterday. With policymakers maintaining a relatively upbeat stance on the domestic outlook the mood of AUD exchange rates nevertheless improved, in spite of the odds of any increase in interest rates remaining slim.

With the second quarter Australian gross domestic product forecast to show a loss of momentum, though, demand for the Australian Dollar looks set to weaken this morning.

Sterling

Another disappointing showing from August’s UK construction PMI further undermined confidence in the outlook of the domestic economy, even though the index remained within growth territory. This underwhelming data was soon eclipsed, however, by comments from Bank of England (BoE) Governor Mark Carney. As Carney confirmed that he is in discussions with the Treasury about a possible extension of his term as governor this gave the Pound a fresh boost of optimism.

Even so, if the latest UK services PMI also falls short of forecast this could see GBP exchange rates slump sharply.

Euro

The Eurozone producer price index showed a solid acceleration in July, picking up from 3.6% to 4.0% on the year. That improvement suggests that inflationary pressures are still building within the currency union, in spite of the recent dip in the headline inflation rate. However, this was not enough to boost the Euro against its rivals overnight as risk aversion continued to fuel demand for the US Dollar.

Any slowdown in Eurozone retail sales may increase the pressure on the Euro, giving investors fresh reason to sell out of the single currency.

US Dollar

A surprise uptick in the ISM manufacturing index for August gave the US Dollar a solid boost in the wake of the Labour Day bank holiday. As the index surged from 58.1 to 61.3 this demonstrated a robust expansion of the manufacturing sector on the month. This bullish growth bodes well for the third quarter gross domestic product, indicating that the positive impact of the Trump administration’s tax cuts are filtering through.

However, the mood of USD exchange rates could soon sour once again if July’s US trade balance shows a significant widening of the deficit.

Canadian Dollar

With anticipation mounting ahead of tonight’s Bank of Canada (BOC) rate decision the Canadian Dollar took a downturn on Tuesday. A steady reading from the latest Canadian manufacturing PMI was not enough to give CAD exchange rates a boost, especially as trade concerns surrounding the US persisted. While oil markets remained in a bullish mood this failed to offer the Canadian Dollar any particular support.

As long as the BOC still looks on course to raise interest rates in October this should help to limit the vulnerability of the Canadian Dollar.

New Zealand Dollar

An absence of risk appetite left the New Zealand Dollar generally lacking in demand yesterday. The strengthening US Dollar and a lack of supportive domestic data saw NZD exchange rates trending lower across the board. The ‘Kiwi’ failed to find a rallying point on the back of the Global Dairy Trade auction as worries over the health of the dairy industry persisted and prices continued to contract.

The New Zealand Dollar could shed further ground if the ANZ commodity price index shows a fresh decline in August.


Data Released

September 5th 11:00 NZD ANZ Commodity Price Index (AUG) 
September 5th 11:30 AUD Gross Domestic Product (YoY) (2Q) 2.8%
September 5th 18:30 GBP Services PMI (AUG) 53.9
September 5th 19:00 EUR Eurozone Retail Sales (YoY) (JUL) 1.3%
September 5th 22:30 USD Trade Balance (JUL) -50 billion
September 6th 00:00 CAD Bank of Canada Rate Decision 1.50%

Post by TorFX

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