Surprise Hawkish ECB Comments Boost Euro Exchange Rates

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Headlines

  • Australian Dollar Trended Lower Ahead of RBA Minutes – Fresh signs of dovishness to weigh on AUD exchange rates
  • Unexpected ECB Hawkishness Boosted Euro Demand – Single currency vulnerable to weaker German GDP figures
  • US Dollar Faltered as Market Risk Appetite Recovered – Fed commentary failed to boost USD rates
  • Disappointing NZ Services PMI Weighed Down New Zealand Dollar – Confidence in domestic outlook remains limited


Australian Dollar

While March’s Australian credit card purchases figure showed a moderate improvement on the month this failed to encourage any particular boost for the Australian Dollar. Although the uptick points towards greater confidence amongst consumers the mood towards the ‘Aussie’ remains generally muted. As the Reserve Bank of Australia (RBA) looks set to remain on hold for some time to come AUD exchange rates struggled to hold on to any traction.

The tone of the RBA’s May meeting minutes could drive further Australian Dollar losses today as markets are unlikely to be impressed by any signs of dovishness.

Sterling

Technical resistance helped to shore up GBP exchange rates at the start of the week, with market reaction to the Bank of England’s (BoE) dovish policy meeting fading. Although confidence in the outlook of the UK economy remains limited and fresh domestic data was lacking on Monday this was not enough to stop the Pound recovering ground. With some investors still betting on the prospect of the BoE raising interest rates before the end of the year the softness of GBP exchange rates was muted.

This evening’s jobs and wage data could provoke fresh volatility for the Pound, particularly if wage growth disappoints.

Euro

Comments from European Central Bank (ECB) policymaker François Villeroy de Galhau encouraged the Euro to rally strongly at the start of the week. As the board member noted that guidance on the timing of an interest rate hike could come before the end of the ECB’s quantitative easing programme the appeal of the single currency picked up sharply. While the central bank is unlikely to make any major policy move imminently the prospect of increased hawkishness boosted EUR exchange rates.

However, as forecasts point towards a slowing of the first quarter German gross domestic product the mood towards the Euro could soon sour.

US Dollar

Demand for the US Dollar remained somewhat limited yesterday in the absence of any supportive domestic data. Commentary from Federal Reserve policymakers was not enough to boost USD exchange rates, with Cleveland Fed President Loretta Mester reiterating a preference for a gradual pace of interest rate hikes. In the wake of last week’s disappointing consumer price index data the odds of a more aggressive pace of Fed tightening appear to have diminished.

With April’s advance retail sales forecast to show a slowdown on the month the US Dollar could remain on the back foot tonight.

Canadian Dollar

The persistent strength of the oil market helped to keep the Canadian Dollar on a relatively solid footing on Monday. While rising US production remains a concern investors were still encouraged by the re-imposition of US sanctions on Iran. A weaker US Dollar also offered support to CAD exchange rates, with markets in a generally bullish mood and piling back into risk-sensitive assets.

If April’s existing home sales figure shows an uptick on the month this could encourage fresh demand for the Canadian Dollar.

New Zealand Dollar

As the New Zealand services PMI proved disappointing this left NZD exchange rates under pressure at the start of the week. Investors were not impressed to find that the service sector had lost some of its momentum at the start of the second quarter. While the PMI remained firmly within expansion territory at 55.9 this was not enough to prevent the New Zealand Dollar trending lower across the board.

A decline in prices at the latest Global Dairy Trade auction may dent the ‘Kiwi’ further today.


Data Released

May 15th 11:30 AUD Reserve Bank of Australia May Meeting Minutes 
May 15th 16:00 EUR German Gross Domestic Product (YoY) (1Q P) 2.4%
May 15th 18:30 GBP Average Weekly Earnings (3M/YoY) (APR) 2.6%
May 15th 19:00 EUR Eurozone Gross Domestic Product (YoY) (1Q P) 2.5%
May 15th 22:30 USD Advance Retail Sales (MoM) (APR) 0.3%
May 15th 23:00 CAD Existing Home Sales (MoM) (APR) 1.4%

Post by TorFX

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