Surprise Slowing in UK Wage Growth Drags Pound Lower

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Weaker Australian Business Confidence Outweighed by Market Risk Appetite – Australian Dollar vulnerable to dovish RBA comments

  • Dip in UK Wage Growth Dented Pound Exchange Rates – Odds of August BoE interest rate hike diminished
  • US Dollar Failed to Capitalise on Rising US Inflation – USD gains limited ahead of Federal Reserve announcement
  • NZD Exchange Rates Pushed Higher on Signs of Rising Inflationary Pressure – Confidence in New Zealand outlook remains fragile


Australian Dollar

Even though the NAB business confidence index weakened markedly on the month this was not enough to particularly weigh down the Australian Dollar yesterday. Investors were more encouraged by better-than-expected home loans and investment lending figures, in spite of persistent signs of weakness within the domestic economy. With market risk appetite picking up in the wake of the US-North Korea summit support for AUD exchange rates strengthened.

Comments from Reserve Bank of Australia (RBA) Governor Philip Lowe could drive the Australian Dollar lower today.

Sterling

Investors were not impressed to find that UK wage growth had unexpectedly dipped in the three months to April, slowing from 2.6% to 2.5%. This undermined confidence in the prospect of an August Bank of England (BoE) interest rate, leaving the Pound on a weaker footing across the board. Although the UK unemployment rate remained at a 43-year low this was not enough to support GBP exchange rates on Tuesday.

A similarly disappointing showing from this afternoon’s UK consumer price index data may encourage Sterling to extend its slump further.

Euro

June’s German ZEW economic expectations index proved discouraging, with the measure slumping dramatically from -8.2 to -16.1. Nevertheless, the Euro remained on a stronger footing during yesterday’s European session even in the face of this latest sign of weakness. Although worries remain over the outlook of the Eurozone’s powerhouse economy, and its ability to rebound from a weak first quarter, EUR exchange rates benefitted from a weaker US Dollar.

Solid Eurozone industrial production figures could offer the Euro an additional boost today.

US Dollar

A solid uptick in the US consumer price index added fresh fuel to bets that the Federal Reserve will raise interest rates imminently. However, as markets have already effectively priced in a June interest rate hike this positive data failed to boost USD exchange rates overnight. With markets in a less risk averse mood, in spite of lingering trade war fears, there appeared to be little reason to favour the US Dollar.

Ahead of tomorrow’s Fed rate decision the appeal of the US Dollar is likely to remain somewhat muted.

Canadian Dollar

CAD exchange rates remained largely under pressure in the absence of any fresh domestic data, with investors still spooked by the prospect of further US tariffs. A modest recovery in oil prices was not enough to give the Canadian Dollar a rallying point last night. While Brent crude prices continued to trend comfortably above the US$76 per barrel mark a sense of uncertainty over the sector outlook persists.

Another increase in US crude oil stockpiles may put additional pressure on the Canadian Dollar tonight.

New Zealand Dollar

Confidence in the New Zealand Dollar picked up on the back of May’s ANZ truckometer reading. As the inflationary measure pointed towards increasing price pressures this helped to shore up NZD exchange rates, raising the odds of the Reserve Bank of New Zealand (RBNZ) returning to a monetary tightening bias in the future. This offset a more disappointing retail card spending figure, even though signs still point towards weaker domestic sentiment.

If May’s food price index also suggests an increase in inflationary pressure the mood towards the New Zealand Dollar is likely to remain bullish.


Data Released

June 13th 08:45 NZD Food Price Index (MoM) (MAY) 
June 13th 10:30 AUD Westpac Consumer Confidence (JUN) 
June 13th 18:30 GBP Consumer Price Index (YoY) (MAY) 2.4%
June 13th 19:00 EUR Eurozone Industrial Production (YoY) (APR) 2.7%
June 14th 04:00 USD Federal Open Market Committee Rate Decision 2.0%

Post by TorFX

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