Hopes of Thawing Korean Relations Boost Australian Dollar

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Headlines

  • RBA Appeared More Optimistic on Wage Growth Outlook – Australian Dollar remains vulnerable to dovish commentary
  • US Dollar Declined Sharply on Reports of Easing Korean Tensions – Cooling global worries left USD exchange rates vulnerable
  • Canadian Manufacturing Sector Pushed Higher in February – CAD exchange rates remain muted ahead of Bank of Canada meeting
  • Sterling Under Pressure from Brexit Jitters – UK and EU officials remain at odds over shape of future relationship

Australian Dollar

Markets were not surprised to find that the Reserve Bank of Australia (RBA) had opted to leave interest rates on hold once again at its March policy meeting. However, signs of increased confidence in the wage outlook still helped to boost the appeal of the Australian Dollar on Tuesday. While earnings growth remains relatively low, limiting the RBA’s desire to raise interest rates, the prospect of improvement in the months ahead looks to have strengthened at least somewhat.

If RBA Governor Philip Lowe takes a more cautious tone in comments this morning, though, AUD exchange rates may see renewed bearishness.

Sterling

While the British Retail Consortium like-for-like sales figure bettered forecast this was not enough to boost the Pound yesterday. Demand for Sterling remained muted thanks to lingering worries over Brexit and the future of the UK economy. Comments from Stefann de Rynck, adviser to chief EU negotiator Michel Barnier, offered a pushback to Theresa May’s recent speech on Brexit, indicating that the two side remain largely at odds over key issues.

Any uptick in the Halifax house price index may limit the downside potential of the Pound today, even if concerns over Brexit continue to mount.

Euro

February’s raft of Eurozone retail PMIs generally bettered forecast, to the benefit of EUR exchange rates. With spending across the currency union showing further signs of strengthening this boosted confidence in the outlook of the wider economy. Concerns over the results of the Italian election continued to diminish, meanwhile, even though the stalemate over government is unlikely to be broken in any particular hurry.

With the finalised fourth quarter Eurozone gross domestic product not expected to see any revision, though, the Euro may see limited volatility today.

US Dollar

A sharp contraction in US factory orders did little to support the US Dollar overnight, offering fresh evidence of weakness within the world’s largest economy. Demand for the ‘Greenback’ had already been dented, however, by reports that North Korea is prepared to discuss the possibility of denuclearisation. This potential thawing in relations on the Korean peninsula saw market risk appetite pick up significantly, leaving USD exchange rates on a downtrend across the board.

The US Dollar may find fresh support tonight, however, as a stronger ADP employment change figure would encourage hopes for another dip in the US unemployment rate on Friday.

Canadian Dollar

The Ivey manufacturing PMI for February proved distinctly positive, surging from 55.2 to 59.6 as the sector expanded solidly on the month. Coupled with the general increase in market risk appetite this helped to shore up the Canadian Dollar during Tuesday’s European session. Even so, the upside potential of CAD exchange rates still looks decidedly muted as markets brace for the latest Bank of Canada (BOC) interest rate decision.

Unless policymakers take a decidedly more upbeat tone on the domestic economy the Canadian Dollar could soon reverse its gains.

New Zealand Dollar

A modest dip in the Global Dairy Trade index was not enough to knock the wind out of the New Zealand Dollar’s sails yesterday. This was largely due to the more optimistic nature of investor sentiment, with the Trump administration looking less likely to follow through on its threat of blanket tariffs on steel and aluminium. With the threat of a global trade war diminished NZD exchange rates naturally picked up.

However, in the absence of any fresh domestic data today the New Zealand Dollar may see fresh losses.

Data Released

March 7th 07:35 AUD RBA Governor Lowe Gives Speech
March 7th 10:30 AUD Gross Domestic Product (YoY) (4Q) 2.5%
March 7th 18:30 GBP Halifax House Prices (MoM) (FEB) 0.4%
March 7th 20:00 EUR Eurozone Gross Domestic Product (YoY) (4Q F) 2.7%
March 7th 23:15 USD ADP Employment Change (FEB) 200,000
March 8th 01:00 CAD Bank of Canada Rate Decision 1.25%

Post by TorFX

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