Wider Trade Surplus Boosts Australian Dollar Confidence

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Headlines

  • Australian Dollar Strengthened on Widening Trade Surplus – Dovish RBA Statement on Monetary Policy may dent optimism
  • USD Exchange Rates Remained on Softer Footing After Less Hawkish Fed Meeting – Solid service sector growth limited downside
  • Markets Disappointed by UK Services PMI – Pound softened as signs continue to point towards weaker economic growth
  • Widened Canadian Trade Deficit Weighed on CAD Rates – Canadian Dollar muted as oil prices remain under pressure


Australian Dollar

A better-than-expected widening of the Australian trade surplus offered a boost to AUD exchange rates yesterday. Markets were encouraged to find that the Australian economy is continuing to fare well in spite of recent global trade jitters, boosting confidence in the domestic outlook. As the latest building approvals figures also surprised to the upside the Australian Dollar was prompted to trend higher across the board.

However, if the Reserve Bank of Australia (RBA) Statement on Monetary Policy proves more dovish in nature this could leave AUD exchange rates under pressure.

Sterling

Although the UK services PMI strengthened on the month this was not enough to prevent further GBP exchange rate weakness. As the index fell short of forecast, clocking in at 52.8 rather than 53.7, this indicated that the economy is still underperforming at the start of the second quarter. With the Bank of England (BoE) now expected to leave interest rates on hold at its May policy meeting the appeal of Sterling has continued to diminish.

The results of Thursday’s UK local elections could provoke fresh volatility for the Pound today.

Euro

Investors were not impressed to find that the Eurozone consumer price index had weakened in April, with the headline figure unexpectedly slipping from 1.3% to 1.2%. With domestic inflationary pressure still trailing significantly behind the European Central Bank’s (ECB) 2% target the case for any return to a hawkish policy bias is limited. As policymakers now look set to leave the quantitative easing programme in place for longer the mood towards the Euro naturally soured.

If the finalised raft of Eurozone services and composite PMIs for April confirm a loss of momentum on the month EUR exchange rates are likely to remain on a weaker footing.

US Dollar

While the ISM non-manufacturing composite index showed a surprise dip on the month this was not enough to extend the downtrend of USD exchange rates overnight. As the index remained firmly within expansion territory markets maintain a relatively confident view of the US economic outlook. Even so, the US Dollar struggled to regain its earlier bullish footing in the wake of the Federal Reserve’s May policy meeting, which proved a little less hawkish than anticipated.

Demand for the US Dollar could pick up sharply tonight if the US unemployment rate finally falls to 4.0% in line with forecasts.

Canadian Dollar

A sharper-than-expected widening of the Canadian trade deficit left the Canadian Dollar generally lacking in support. This weakness was largely driven by an uptick in import volumes, highlighting the economy’s vulnerability to any further deterioration in global trade conditions. With oil prices still under pressure as a result of rising US production there was little to prevent CAD exchange rates slipping lower.

However, if the Ivey PMI is found to have strengthened on the month in April this could boost the Canadian Dollar.

New Zealand Dollar

NZD exchange rates found fresh support on the back of the ANZ commodity price index, which clocked in at 1.0% in April. This solid growth in export prices encouraged greater optimism in the underlying health of the New Zealand economy, to the benefit of the ‘Kiwi’. Disappointment over the more cautious optimism of the Fed also helped to shore up the New Zealand Dollar yesterday.

If the latest US jobs data prompts an increase in market risk aversion this could weigh heavily on NZD exchange rates.

Data Released

May 4th 11:30    AUD    Reserve Bank of Australian Statement on Monetary Policy    
May 4th 18:00    EUR    Eurozone Services PMI (APR F)    55
May 4th 22:30    USD    Unemployment Rate (APR)     4.0%
May 5th 00:00    CAD    Ivey PMI (APR)    60.2

Post by TorFX

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