Australian Dollar:
Despite a reduction in the benchmark cash rate the Australian dollar rallied in the wake of yesterday’s RBA Cash Rate Announcement and Rate Statement. The Central Bank Board opted to cut rates to new lows in a bid to stimulate household and consumer spending. Ordinarily the move would prompt a precipitous sell order but comments from Governor Stevens counteracted the downward shift. Stevens acknowledge the recent inflation outlook was well within the Banks target band enabling a further easing of Monetary Policy but failed to suggest further rate adjustments were imminent. With the downward adjustment effectively priced in, the absence of language supporting a sustained period of easing lead analyst to believe a line has been drawn at 2% and that a more neutral policy stance will be adopted moving forward. With the threat of additional rate cuts removed the Aussie rallied to an overnight high of 0.7955. Attentions now turn to Retail Sales ahead of Friday’s quarterly RBA policy statement and economic forecast as markets seek a deeper insight into growth prospects.
We expect a range today of 0.7750 – 0.8010
New Zealand Dollar:
The New Zealand dollar took advantage of a U.S Dollar sell off Tuesday following its antipodean partner higher. Bolstered by the Australian Reserve Banks decision enter a period of neutral monetary policy the Kiwi moved back through 0.79 edging toward 0.7950 on a widening US trade balance and declining economic optimism. A drop in the Global Dairy Trade index forced investors to reassess positions but was largely shrugged off as markets prepare for and look to key unemployment and labour market data for direction through Wednesday.
We expect a range today of 0.7450 – 0.7630
Great British Pound:
The Great British Pound met little resistance in a push toward 1.52 as U.S Dollar weakness overshadowed a softer than anticipated construction report. Construction activity edged lower through April but held comfortably above the critical 50 level indicating expansion and stable growth. Attentions remain squarely fixed on tomorrow’s general election while service sector activity offices fundamental guidance through trade today.
We expect a range today of 1.8810 – 1.9380
Majors:
The U.S Dollar ended a three day rally Tuesday as another mixed set of macroeconomic fundamentals added greater uncertainty about the strength of recovery and timing of upward interest rate adjustments. An expansion in services sector activity was offset by a widening Trade Balance and decline in economic optimism forcing the Greenback downward against it European and Japanese counterparts. After a poor start to the year the growth outlook is being called into question forcing analysts to re-evaluate expectations surrounding Federal Reserve monetary policy adjustments. Seasonal trading would suggest Dollar strength throughout May however directional impetus lies squarely on the shoulders of Fridays Non-Farm Payroll report. The burgeoning labour market has been the catalyst for Greenback strength and has propped up otherwise soft data throughout the first quarter. A poor print would leave the Greenback open and vulnerable to a deeper downward correction.
The Euro edged higher on USD weakness touching 1.1231 as markets ignored suggestions the IMF would cut funding to Greece unless a compromise with creditors was agreed. Despite Greece’s worsening financial plight there is still a sense that an agreement will be reached before May 11 and a 970 million Euro debt bill is due for repayment. Attentions now turn to service sector health across the Eurozone for direction through trade on Wednesday.
Data releases:
AUD: HIA New Home Sales and Retail Sales
NZD: Employment Change, Labour Costs and Unemployment Rate
JPY: Bank Holiday
GBP: Halifax HPI m/m and Services PMI
EUR: Spanish, Italian, French, German and Eurozone Services PMI and Eurozone Retail Sales
USD: ADP Non-Farm Employment Change, Prelim No Farm Productivity q/q, Prelim unit Labour Costs q/q, Fed Chair Janet Yellen Speaks, Fed Member Lockhart Speaks and Crude Oil Inventories.