- Trade War Concerns Weighed Heavily on Risk-Sensitive Australian Dollar – Weaker manufacturing PMI failed to support AUD exchange rates
- Euro Benefitted From End to Italian Political Uncertainty – Threat of a fresh Eurozone crisis abates
- Stronger-Than-Expected UK Manufacturing PMI Boosted GBP Exchange Rates – Signs point towards weaker UK construction sector result
- Canadian Dollar Pressured by US Tariffs – Odds of BOC monetary tightening diminish
Renewed fears over the prospect of a global trade war weighed heavily on the Australian Dollar ahead of the weekend. While Australia is not directly impacted by the US decision to impose steel and aluminium tariffs on the Eurozone, Canada and Mexico AUD exchange rates still came under pressure. The risk-sensitive ‘Aussie’ failed to find any support, meanwhile, as May’s manufacturing PMI showed a slight loss of momentum on the month.
If the TS Securities inflation estimate shows an improvement on the month, however, this could offer support to AUD exchange rates.
Confidence in the Pound picked up sharply on Friday thanks to a better-than-expected UK manufacturing PMI. As the index showed a surprise uptick from 53.9 to 54.4 this encouraged investors to pile back into Sterling. The improvement stoked bets that the domestic economy recovered momentum in the second quarter, with markets still optimistic that the Bank of England (BoE) will vote to raise interest rates in August.
With forecasts pointing towards a decline in the UK construction PMI, though, GBP exchange rates look vulnerable to the downside today.
While Spanish Prime Minister Mariano Rajoy lost a no confidence vote this failed to particularly dent EUR exchange rates. Markets are hopeful that the departure of Rajoy will not prompt any major shift in policy, with political turmoil limited by the speedy takeover of a leftist prime minister elect. A resolution to the Italian deadlock also helped to support the Euro, even though doubts remain over the populist coalition. A stronger US Dollar, however, knocked EUR exchange rates back during Friday’s European session.
An uptick in the Eurozone producer price index could give the Euro cause for confidence today, providing the data points towards rising inflationary pressure within the currency union.
Markets were pleasantly surprised to find that the US unemployment rate had fallen further in May, dipping from 3.9% to 3.8%. This stronger showing indicates that the US labour market is continuing to tighten, something which is likely to be welcomed by Federal Reserve policymakers. A better-than-expected average hourly earnings figure offered an additional boost to USD exchange rates, even in the face of uncertainty over the impact of a US-EU trade war.
A contraction in US factory orders may not be enough to knock the US Dollar off a stronger footing tonight.
The US decision to impose steep steel and aluminium tariffs on Canada left CAD exchange rates on a downtrend on Friday. After the weaker growth data there are concerns that the economy is likely to come under increasing pressure in the months ahead. As this could encourage the Bank of Canada (BOC) to hold off on tightening monetary policy further the appeal of the Canadian Dollar naturally diminished.
If oil prices remain under pressure today the Canadian Dollar is likely to follow suit.
New Zealand Dollar
NZD exchange rates slumped ahead of the weekend in response to a sharp contraction in the first quarter New Zealand terms of trade index. The decline in the terms of trade encouraged investors to pile out of the New Zealand Dollar once again, especially as the general sense of market risk appetite deteriorated. Confidence in the domestic outlook remains distinctly limited at this juncture, to the detriment of the ‘Kiwi’.
In the absence of any positive domestic data NZD exchange rates look set to remain on a weaker footing.
June 4th 11:00 AUD TD Securities Inflation (YoY) (MAY)
June 4th 18:30 GBP Construction PMI (MAY) 49.7
June 4th 19:00 EUR Eurozone Producer Price Index (YoY) (APR) 2.4%
June 5th 00:00 USD Factory Orders (APR) -0.3%
Post by TorFX