As a new week gets underway both the Pound and Euro are trailing their Australian counterpart.
The GBP to AUD and Euro to AUD exchange rates were softer on Monday as investors reacted to surprisingly strong Japanese growth data, with the Pound being 0.18 per cent lower and the Euro edging down by 0.25 per cent.
The Australian Dollar was already slightly stronger against its major currency counterparts as investors turned to higher-risk assets in the wake of the European Central Bank’s rate decision.
While the steps taken by the ECB (such as the introduction of a negative deposit rate) had largely been priced into the market, riskier currencies like the ‘Aussie’ and ‘Kiwi’ were boosted by the news.
A better-than-anticipated Australian AiG performance of construction index also lent the Australian Dollar support. While the gauge remained below the 50 mark separating growth from contraction, it advanced from 45.9 to 46.7 in May.
Similarly, the ‘Aussie’ was bolstered as the US non-farm payrolls report came in just above forecast, showing an employment gain of 217,000 last month. This was the fourth month that the US economy had added over 200,000 positions and added to the case for the Federal Reserve hiking interest rates, as well as improving the global growth outlook.
Over the weekend some ‘Aussie’ movement was inspired by China’s trade figures.
China is Australia’s largest trading partner so the news that Chinese imports unexpectedly declined by 1.6 per cent while imports climbed by 7 per cent had an impact on the ‘Aussie’.
Economist Louis Kuijs said this of the Chinese report; ‘The export figures are positive news for policy makers and we expect continued solid export growth in the coming months amidst gradually improving global demand momentum. The import data suggest a pretty subdued state of the domestic economy though and dilemma for the government is how to balance the need to reduce growth in leverage with all the calls for support.’
Meanwhile, on Monday Japan’s GDP data showed that the Japanese economy expanded at a more rapid pace than projected in the first quarter of the year.
In the first three months of 2014 the Japanese economy expanded by 6.7 per cent, smashing the initial estimate of 5.9 per cent expansion.
The result is proof that the unprecedented stimulus measures adopted by the Bank of Japan back in 2013 are having the desired impact.
Japanese business spending was also up by 7.6 per cent in the first quarter, considerably more than the 4.6 per cent estimated, while consumer spending advanced by 2.2 per cent instead of the 2.1 per cent.
The Pound was little-changed this morning and is unlikely to experience much movement today due to an absence of pertinent economic data for the UK, although the Lloyds employment confidence measure did climb from 1 to 4.
The Euro was also trending in a narrow range ahead of the release of Sentix investor confidence data for the Eurozone. The sentiment report showed an unexpected decline in June, with the measure sliding from 12.8 to 8.5 rather than rallying to 13.3 as forecast.
Additional Australian Dollar movement could occur overnight as a result of the nation’s home loans and business confidence reports.
As European trading progressed on Monday the Pound edged up slightly against the Australian Dollar. The ‘Aussie’ was still benefiting from Japan’s stronger-than-forecast growth data but Sterling was lifted by an encouraging Lloyd’s business confidence report and the fact that the International Monetary Fund displayed confidence in the progress of the UK’s economic recovery.
The Pound pared its overnight decline against the Australian Dollar to 0.16 per cent.
However, the Euro edged lower against its Australian counterpart during the same period as a measure of investor confidence for the Eurozone showed an unexpected decline. Economists believed that the Eurozone’s sentiment measure would rally to 13.3 in June from 12.8 in May, but it actually slid to a six month low of 8.5 per cent. According to Sentix, who compiled the report; ‘The Eurozone indicators’ decrease all the more comes as a surprise as the European Central Bank has just announced a whole package of new measures to push economic growth and inflation […] This setback is mainly driven by a falling assessment of the current situation. But six-month expectations also decrease’.
The Euro to AUD exchange rate dipped by 0.45 per cent as Monday continued.
In other currency news, the GBP to Euro exchange rate advanced to a high of 1.2354 as the Euro’s weakness spread.
The Pound may well enjoy a neutral-positive relationship with the Euro this week, particularly if tomorrow’s UK industrial and manufacturing production reports show the improvement expected. Of course investors will also be focusing on the upcoming UK employment figures and Germany’s inflation data, due out on Wednesday and Friday respectively. If Germany’s final inflation figures for May confirm that prices fell by 0.1 per cent in May, month-on-month, it could add to the case for the ECB considering the introduction of quantitative easing.
Update – 10/06/14
Monday’s less-than-impressive Sentx investor confidence report for the Eurozone pushed the Euro lower against several of its most traded currency counterparts.
Overnight the common currency consolidated these declines against the Australian Dollar and the Euro began trading on Tuesday in a softer position against the Pound and US Dollar.
The Euro to AUD exchange rate was down 0.28 per cent.
The Euro to AUD echange rate remained under pressure in spite of a disappointing Australian home loans report. Although economists had expected home loans to increase by 0.2 per cent in April they actually stagnated having fallen by a positively revised 0.8 per cent in March.
Separate Australian data showed that the NAB business confidence measure held at 7 in May while the gauge of business conditions slipped slightly to -0.1.
NAB economist Alan Oster said this of the sentiment figures; ‘Improvements in the labour market may be offsetting some of the political uncertainty and drop in consumer confidence, but one would need to see a stronger lift in forward orders and conditions to justify current levels of business confidence,’
The Australian Dollar was also supported as the value of domestic investment lending surged by 2.3 per cent in April after declining by a revised 0.6 per cent the previous month. The value of loans increased by 1.4 per cent on a month-on-month basis.
Later today final Italian growth figures could have an impact on the Euro to AUD exchange rate. Investors will also be taking an interest in Australia’s Westpac Consumer Confidence gauge, due out tomorrow at 01:30 GMT.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,,New Zealand Dollar,1.6001,