Economic Voice Weekly Roundup: BoE, BOC, RBNZ in Focus, GBP, CAD, NZD Movement Expected
Pound Sterling (GBP) Exchange Rate Recovers after Service-Led Slump
Towards the close of last week the Pound declined against the majority of its currency counterparts as investors ditched the British asset in response to a disappointing UK Services PMI report. The rate of growth in the UK service sector eased to a two-year low and left industry experts betting that the Bank of England (BoE) will delay increasing interest rates until the third quarter of next year. The GBP/EUR exchange rate entered the weekend in a softer position while the GBP/USD currency pair hit a four-month low. However, Sterling staged a rebound as a new week of trading began in spite of a lack of domestic economic stimulus. If the Bank of England’s (BoE) policy meeting minutes show that the slowdown in China hasn’t put policymakers off the idea of raising rates at the turn of the year Sterling’s uptrend may continue. Conversely, any hints that borrowing costs are likely to remain on hold for the foreseeable future would have a detrimental impact on Sterling.
Euro (EUR) Exchange Rate Performance Missed after Dovish Draghi Comments
At last week’s European Central Bank (ECB) policy meeting, the central bank opted to leave interest rates on hold but indicated that quantitative easing will be expanded if the global economic situation warrants it. The rather dovish assertions initially had a detrimental impact on demand for the Euro but the common currency recovered losses before the weekend. This week the Euro has experienced fairly patchy trading in spite of the Eurozone’s second quarter growth data printing at 0.4% rather than 0.3%. If the situation in China deteriorates further and increases the odds of the ECB altering stimulus, the Euro could extend losses in the days ahead.
US Dollar (USD) Conversion Rate Trends Higher after Mixed NFP
Friday’s US Non-Farm Payrolls report might not have been universally positive, with the nation recording fewer jobs gains than expected, but the notable decline in the US unemployment rate ultimately bolstered Federal Reserve interest rate hike speculation and lent the US Dollar support. So far this week US data has been lacking and with no really influential ecostats scheduled for publication for the rest of the week, ‘Greenback’ movement is most likely to occur in response to global economic sentiment and developments in China.
Australian Dollar (AUD) Exchange Rate Fluctuating in Response to Chinese Trade Data, Domestic Reports
With demand for commodity-driven currencies limited by the news that both Chinese imports and exports slumped in August, the Australian Dollar fluctuated close to six-year lows against both the US Dollar and Pound on Tuesday. Demand for the ‘Aussie’ was additionally limited due to the fact that Australia’s Business Confidence index fell from 4 to 1 in August. While the situation in China is likely to continue having a profound impact on AUD currency market movement, the week’s remaining Australian reports (including the Westpac Consumer Confidence Index, Home Loans Data and Investment Lending figures) could also dictate what direction the commodity currency takes.
New Zealand Dollar (NZD) Exchange Rate Lower before RBNZ Announcement
The expectation that the recent slowdown in China will prompt the Reserve Bank of New Zealand (RBNZ) to cut borrowing costs at this week’s policy gathering left the New Zealand Dollar trending in a broadly softer position for the first half of the week. If the RBNZ does indeed act as economists expect and slash interest rates to 2.75% the New Zealand Dollar is likely to drop to fresh multi-year lows against peers like the Pound and US Dollar. Conversely, should the central bank opt to adopt a wait-and-see approach the ‘Kiwi’ may rally before the weekend.
Canadian Dollar (CAD) Volatile as Oil Prices Slide
With the value of Canada’s key commodity dropping at the beginning of the week the ‘Loonie’ also declined. A dip in China’s equity market spearheaded the slide in ‘black gold’ prices and led to further speculation surrounding the odds of the Bank of Canada (BOC) cutting interest rates again this year. The BOC is due to meet tomorrow and while a policy revision isn’t anticipated the central bank may offer some guidance as to whether they think additional action is appropriate given the current climate. Interest rate related hints are likely to have a profound impact on CAD trading. Investors will also be taking an interest in Canadian Housing Starts and Building Permits data.