Central Bank Activity and Speculation Drives AUD, EUR, USD, CAD

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Pound Sterling

Pound Sterling is currently on a high thanks to the performance of recent economic data. Indices charting the growth of the manufacturing, construction and services sector all strongly bettered forecasts. While the construction industry remained marginally in contraction, the manufacturing and services sectors both surprised markets by posting growth in August. Tomorrow’s data will help further build the picture of post-Brexit Britain, with industrial and manufacturing production expected to show a strong acceleration in output. Also important tomorrow will be speeches from several Bank of England (BoE) officials, including Governor Mark Carney.

Euro

The Euro has been weakened recently by poor German data. Germany is considered the Eurozone’s ‘powerhouse’ economy, so a weakening in output from its strongest economy is a worrying sign. Yesterday’s figures showed that Germany’s slowdown had cancelled out growth from other member states such as France and Italy, weakening the overall Eurozone data. The Euro is likely to remain weak as Thursday’s important monetary policy meeting draws near. No changes to interest rates are expected from the European Central Bank (ECB). However, markets are predicting that the ECB will reiterate their willingness and ability to act, raising the odds of further stimulus measures before the end of the year.

US Dollar

A strong Australian Dollar is keeping the US Dollar weak today as investors turn away from safer assets and currencies to buy the high-yielding ‘Aussie’. Further weakening the ‘Greenback’ is the approach of key economic data. With the Federal Reserve having again signalled that a further interest rate increase will be dependent upon the data, the US economic calendar has been closely watched. Today’s release, the ISM composite, is expected to weaken only marginally, while remaining strongly in growth territory. This is unlikely to particularly alter the odds of the Federal Reserve acting, but a much weaker result could seriously undermine the US Dollar.

Australian Dollar

An improved outlook from the Reserve Bank of Australia (RBA) has sent the Australian Dollar on a bullish advance today. The RBA left interest rates on hold at 1.5% in its latest policy meeting as expected. Changes to the accompanying statement were minute, but important. Words to moderate the assessment of the economy were removed from the previous statement to suggest an improved outlook on the economy. Market belief is now that the RBA won’t ease policy in November either, unless the interim data should severely disappoint.

Tomorrow’s GDP figures for the second quarter are expected to show a marginal acceleration in growth, which would boost the Australian Dollar even further.

New Zealand Dollar

Strong Chinese data and weakening hopes of higher US interest rates helped the New Zealand Dollar to make gains last week. Strong manufacturing data suggested a continued high demand for New Zealand’s mineral exports. The New Zealand Dollar is trending bullishly today, helped by the latest developments from Australia stoking strong risk appetite. Markets are awaiting the results of the latest GlobalDairyTrade auction. The last fortnightly auction saw dairy prices jump over 12%. Another performance like that would significantly strengthen the ‘Kiwi’ while a fall will undermine demand.

Canadian Dollar

Oil prices surged yesterday thanks to the news that Russia and Saudi-Arabia had signed a pact agreeing to look for ways to stabilise the volatile oil markets. This boosted the Canadian Dollar, but the ‘Loonie’ has fallen today as crude oil investors become more cautious. WTI is still making strong gains of 1%, but Brent has slipped -0.8% as traders overcome their initial excitement and re-evaluate the odds that anything positive will come out of the agreement. Meanwhile, the Canadian Dollar is also weakened by the approach of a Bank of Canada (BOC) interest rate decision.

Posted by Rewan

Rewan is one of an in-house team of currency analysts working at TorFX, a leading foreign currency broker. In his role Rewan studies the latest currency market movements and writes about the impact of global economics and politics on exchange rates for several online and physical publications.

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