USD Exchange Rates Benefit After Unemployment Rate Betters Forecast

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Headlines

  • RBA Statement on Monetary Policy Maintained Forecasts – Australian Dollar rally possible on strengthening NAB business confidence
  • Surprisingly Weak Eurozone PMIs Weighed on Euro – Signs continue to point towards softer Eurozone growth
  • US Dollar Boosted After Unemployment Rate Hit 3.9% - Markets continue to hope for more aggressive Fed policy tightening
  • UK Local Elections Failed to Provoke Pound Jitters – Voters maintain status quo


Australian Dollar

As the Reserve Bank of Australia’s (RBA) Statement on Monetary Policy maintained a generally optimistic tone, leaving its forecasts largely unchanged, the downside bias of the Australian Dollar was limited ahead of the weekend. Markets still see little chance of the central bank raising interest rates before mid-2019, giving investors no reason to favour the risk-sensitive ‘Aussie’. The relative strength of the US Dollar also kept AUD exchange rates in check.

With the NAB business confidence index forecast to pick up on the month this could offer some additional support to the Australian Dollar today.

Sterling

The local UK elections failed to prompt any significant political shift, with voters largely maintaining the status quo. This limited the impact of the results on the Pound, as Prime Minister Theresa May’s position was not particularly undermined by the vote. Even so, as confidence in the domestic economic outlook remains largely muted this left GBP exchange rates lacking in any real direction during Friday’s European session.

As the Bank of England (BoE) is expected to leave interest rates on hold this week Sterling may struggle to find traction against its rivals.

Euro

Confidence in the single currency deteriorated further on the back of a surprise downward revision to April’s raft of Eurozone services and composite PMIs. As this suggests that the economy started the second quarter on a weaker footing the appeal of the Euro naturally declined. All in all, signs point towards the Eurozone continuing to lose growth momentum over the coming months. Weaker-than-expected Eurozone retail sales data also put pressure on EUR exchange rates.

If the latest Eurozone retail PMI falls into contraction territory as anticipated the mood towards the Euro is likely to sour further.

US Dollar

Although April’s headline non-farm payrolls figure proved disappointing this was coupled with a better-than-expected dip in the US unemployment rate. As unemployment fell from 4.1% to 3.9% this encouraged the US Dollar to push higher against its rivals, pointing towards continued tightening of the domestic labour market. This helped to limit the negative impact of a surprise weakening in average hourly earnings, even though this may offer the Federal Reserve some pause.

Demand for the US Dollar is likely to ease ahead of tomorrow’s consumer credit figure, in spite of confidence in the underlying health of the US economy.

Canadian Dollar

April’s Ivey PMI surged ahead of forecasts, strengthening from 59.8 to 71.5 as business confidence picked up sharply. This bullish result encouraged greater optimism in the Canadian outlook, offering support to CAD exchange rates ahead of the weekend. While oil prices also recovered some ground, however, the Canadian Dollar still struggled to make any particularly strong gains.

As long as signs continue to point towards rising US oil production, though, CAD exchange rates may remain biased to the downside.

New Zealand Dollar

In the absence of any fresh domestic data the New Zealand Dollar came under some pressure. A stronger US Dollar and market bets on the prospect of more aggressive Federal Reserve policy tightening weighed heavily on the ‘Kiwi’. With markets seeing little reason to favour higher-yielding currencies on Friday this left NZD exchange rates lacking in any particular momentum.

Confidence in the New Zealand Dollar is unlikely to pick up today, barring any dramatic shift in market risk sentiment.


Data Released

May 7th 08:30 AUD Construction PMI (APR) 55.5
May 7th 11:30 AUD NAB Business Confidence Index (APR) 9
May 7th 18:10 EUR Eurozone Retail PMI (APR)  49.6

Post by TorFX

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