Australian Dollar primed for rally
08 September 2016 by News DeskAustralian Dollar rates marked a more definite return to risk-on movements in the foreign exchange market.
Australian Dollar has been primed for a rally over the last two weeks boosted by generally decent economic stats, a bullish New Zealand Dollar and the Reserve Bank of Australia leaving rates on hold, according to currency specialists TorFX
As Fed rate hike bets fall, so does the US Dollar causing investors to look to higher-yielding risky currencies like the Australian Dollar.
The Australian Dollar may also have been slightly boosted by news that Australia’s trade deficit had softened more than expected in July, from -3,250m to -2,410m.
New Zealand Dollar (NZD) – The Pound to New Zealand Dollar exchange rate plummeted on Wednesday and continued to slip lower on Thursday, as a US Dollar selloff left the New Zealand Dollar as the most in- demand risk-correlated currency due to strong commodity and domestic news.
Prices of New Zealand’s most lucrative commodity, dairy, hit levels not seen since March 2015 on Tuesday which bolstered the ‘Kiwi’ during Wednesday’s Asian session.
Generally stronger risk sentiment after last week’s risk-off movements also left the ‘Kiwi’ surging. The New Zealand Dollar continues to trend higher on Thursday, making it one of the week’s best performing major currencies.
Australian Dollar primed for rally
Pound Sterling (GBP) – Sterling slumped on Wednesday, losing its weekly advances as some of the strengthening sentiment for the currency and the British economy faded. While British industrial production came in above expectations in July, manufacturing production came in far worse.
The manufacturing sector was already known to have struggled in July, but the report from the Office for National Statistics (ONS) revealed that manufacturing had contracted by -0.9%.
This brought the yearly score down to a low 0.8%. NIESR’s latest Gross Domestic Product (GDP) estimate for August was unchanged from the previous report, coming in at 0.3%.
Overall, the day’s data was unable to support the Pound and comments from the Bank of England (BoE) claiming its easing measures had been necessary thus far weighed on Pound appeal. Sterling trended flatly on Thursday morning but could remain this way until Friday due to a lack of British data.
US Dollar (USD) – The US Dollar was able to recover against many of its major rivals on Wednesday as a lack of damning US data gave investors the space they needed to buy the US Dollar up slightly after its recent selloffs.
The ‘Greenback’ Dollar plummeted across the board in response to the surprisingly poor August PMIs released by ISM over the last week, as well as an underwhelming Non-Farm Payroll report that weighed heavily on Federal Reserve rate hike bets.
However, while Fed rate hike bets remain low, the US Dollar is the world’s premiere reserve currency, meaning its weak-streaks rarely allow it to fall too low. Regardless, while the USD is trending above its worst weekly levels against the Pound it remains in generally low favour and was trending with a downward bias against most majors on Thursday morning.
Euro (EUR) – Investors began to focus their attention on the Euro on Wednesday and continued to buy into the shared currency gradually on Thursday morning, as markets prepared for the European Central Bank’s (ECB) first policy meeting since July.
ECB policymakers are not expected to be introducing any further stimulus measures, but some analysts believe stimulus is indeed possible due to disappointing August datasets. At the very least, the ECB will likely adopt a dovish tone, with some predicting that the bank will confirm that the Brexit vote has had some kind of negative impact on the Eurozone’s economic recovery after-all.
Regardless, it is likely that a dovish tone could weaken the Euro considerably on Thursday afternoon and Friday. If officials continue maintaining that the Brexit vote has not had an adverse effect on the Eurozone however, the Euro could strengthen slightly.
Canadian Dollar (CAD) – The Canadian Dollar has struggled to maintain its strength this week despite a strong shift in sentiment towards risk-correlated currencies. Mixed views towards the likelihood of an oil supply production freeze have weighed on the currency, but on Wednesday the Canadian Dollar was primarily weakened by a more dovish-than-expected stance from the Bank of Canada (BOC).
The BOC held its September policy meeting during Wednesday’s American session, leaving the key interest rate on hold at 0.50% as expected. However, the bank cited that the Canadian economy shrank further than expected in Q2 2016 due to the Alberta wildfire disaster and indicated that if things do not improve, action may need to be taken.
This left the Canadian Dollar weaker on Thursday morning too, despite an increase in oil prices due to lower-than-expected US oil stocks.
Disclaimer: This update is provided by TorFX, a leading foreign exchange broker, its content is authorised for reuse by affiliates.
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