Lack of RBA Action Leaves Australian Dollar on Back Foot

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  • RBA Left Monetary Policy on Hold for Twentieth Consecutive Meeting – Australian Dollar under pressure ahead of GDP data
  • Dairy Price Contraction Dragged New Zealand Dollar Lower – NZD remains vulnerable to market sentiment
  • Stronger UK Services PMI Shored up Pound Sterling Exchange Rates – Investors bet on prospect of August BoE interest rate hike
  • Labour Productivity Contraction Weighed Down Canadian Dollar – Confidence in Canadian economic outlook diminishes

Australian Dollar

The Reserve Bank of Australia’s (RBA) June policy meeting unsurprisingly saw interest rates left on hold for a twentieth consecutive meeting. As this means the RBA has now sat on its hands for a record long period the mood towards the Australian Dollar naturally turned bearish. With policymakers looking set to keep monetary policy unchanged for some months yet to come the upside potential of AUD exchange rates remained limited.

Even so, a stronger showing from the first quarter gross domestic product data could offer the Australian Dollar a rallying point today.


GBP exchange rates rallied sharply on Tuesday thanks to a stronger-than-expected UK services PMI, which jumped from 52.8 to 54.0 in May. This suggests that the service sector had continued to rebound from the weakness seen in March, boosting hopes in the likelihood of stronger second quarter growth. Although the underlying details of the report were not entirely encouraging, with new orders growth still proving weak, this was not enough to prevent Sterling pushing higher across the board.

Commentary from Bank of England (BoE) policymakers over the coming days may give the Pound an additional boost, providing they sound a more hawkish note.


Confirmation that May’s Eurozone services and composite PMIs weakened on the month in May left the Euro on a softer footing. Investors were discouraged by the reminder that the domestic economy has lost momentum since the start of 2018, weakening hopes for a second quarter rebound in growth. Although April’s retail sales showed a solid improvement on the year this failed to offer EUR exchange rates any particular measure of support at this juncture.

If today’s retail PMIs prove similarly disappointing the mood towards the Euro is likely to sour further.

US Dollar

The US Dollar was encouraged by news that the ISM non-manufacturing composite index had strengthened further than forecast on the month. As the index leapt from 56.8 to 58.6 this helped to shore up USD exchange rates, boosting confidence in the outlook of the world’s largest economy. All in all, the odds of the Federal Reserve raising interest rates imminently remain elevated, limiting the potential for USD exchange rate weakness.

A widening of the US trade deficit may put something of a dampener on the US Dollar overnight, though, with a weaker showing likely to fuel US protectionism.

Canadian Dollar

A contraction in the first quarter Canadian labour productivity figure put CAD exchange rates under additional pressure. This decline in productivity provoked fresh concerns over the health of the Canadian economy, something which could discourage the Bank of Canada (BOC) from tightening monetary policy in the near future. With Brent crude prices continuing to slide there was nothing to stop the Canadian Dollar trending lower last night.

With forecasts pointing towards a sharp contraction in building permits on the month the Canadian Dollar may struggle to find any support today.

New Zealand Dollar

Yesterday’s Global Dairy Market auction failed to improve sentiment towards the New Zealand Dollar as prices slumped 1.3%. As dairy prices remain under pressure confidence in the outlook of the New Zealand economy deteriorated further, especially in the face of global trade uncertainty. A stronger US Dollar also limited support for NZD exchange rates on Tuesday.

However, if the latest ANZ commodity price index proves positive this could help the New Zealand Dollar to recover some ground.

Data Released

June 6th 11:00 NZD ANZ Commodity Price Index (MAY) 
June 6th 11:30 AUD Gross Domestic Product (YoY) (1Q) 2.7%
June 6th 18:10 EUR Eurozone Retail PMI (MAY) 
June 6th 22:30 CAD Building Permits (MoM) (APR) -1.3%
June 6th 22:30 USD Trade Balance (APR) -49.1 billion

Post by TorFX

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