There was nothing in the way of domestic data today to distract investors from persistent concerns over the outlook of the UK economy on Monday, leaving the Pound floundering against rivals. The appeal of Sterling remains biased to the downside in the wake of the Bank of England’s (BoE) decision to lower interest rates to a fresh record low at its August policy meeting. Arguments over domestic wages and another rail strike on the Southern rail network equally did nothing to improve confidence in the domestic outlook.
Demand for the single currency strengthened at the start of the week on the back of better-than-expected German industrial production figures. The rebound in output for June went some way to counteracting a poor May figure, encouraging confidence in the robustness of the Eurozone’s powerhouse economy. This helped to boost hopes for the second quarter GDP data set for release on Friday, with the Euro given further support by another upside surprise in the latest Sentix Investor Confidence Index.
Friday’s unexpectedly strong Non-Farm Payrolls report led to a fresh round of speculation over the possibility of the Federal Reserve raising interest rates before the end of the year. Headline employment was found to have risen bullishly, suggesting that the domestic jobs market has continued to tighten. As this would seem to indicate that the world’s largest economy is in a generally strong state investors were inclined to buy back into the ‘Greenback’, although some of that bullish demand died back on Monday morning.
Even though the latest Chinese trade data proved distinctly disappointing this was not enough to keep the ‘Aussie’ on a weaker footing for long on Monday morning. Chinese imports shrank much more than expected on the year in July, suggesting that commodity demand was slowing. Nevertheless, the antipodean currency soon recovered its strength, with the impact of last week’s dovish Reserve Bank of Australia (RBA) rate decision having now largely faded.
New Zealand Dollar
The appeal of the ‘Kiwi’ has been decidedly limited in anticipation of the Reserve Bank of New Zealand’s (RBNZ) policy meeting on Wednesday evening. Markets widely expect policymakers to cut interest rates once again, given longstandnig concerns over the relative strength of the New Zealand Dollar. As a result there has been little reason for investors to buy into the currency at the start of the week, in spite of the more limited demand for the safe-haven US Dollar.
While pressure on oil prices has remained high, this failed to particularly drag on the ‘Loonie’ on Monday morning. Not only did the US Baker Hughes rig count indicate a sustained increase in output but the latest Chinese data seemed to point towards weakening global demand for the commodity. Nevertheless, investors are hopeful that the afternoon’s Canadian Building Permits result will signal an improvement in the domestic housing market, easing the impetus for the Bank of Canada (BOC) to reconsider its neutral policy outlook.