Morning Report 05.05.2015
Nicholas Ebisch, FX Analyst
The pound fell across the board on the Friday before election week as the close race is unnerving investors. This week’s polls and run up to the election will very likely catalyse some market volatility during a busy week. Additionally, Australia has cut its benchmark interest rate to 2% from 2.25% in an attempt to boost an economy which is dragging largely due to the end of a very long mining boom. Today, we will see construction PMI figures from the UK, US and Canadian trade balance, and US non-manufacturing PMI
GBP/EUR: Currently trading at 1.3609
Friday’s UK Manufacturing PMI came in much lower than expected, and the pound steadily weakened over the course of the day, with some correction seen in the rate during yesterday’s UK Bank Holiday. Eurozone manufacturing PMI data released yesterday came in better than expected for Italy but worse than expected for Spain.
This morning’s Spanish Unemployment Change came in significantly better than expected at -118.9K versus -64.8K. UK Construction PMI will be released this morning, with EU Economic Forecasts out later this morning. With the possibility of Sterling volatility as a result of election uncertainty, we may see the rate increase.
GBP/USD: Currently trading at 1.5121
Following a 1.72% (nearly two-cent) drop on Friday after disappointing UK manufacturing data, the dollar made further gains in yesterday’s session. Announcements from the US included m/m Factory orders, which came in as forecast at 2.1%, and expectedly dovish comments by Fed member Charles Evans, who reiterated his support for a 2016 rate increase despite optimism about US growth.
Today’s releases include this morning’s announcement of UK Construction PMI data and this afternoon’s US trade balance and ISM Non-Manufacturing PMI. We may see some volatility in the pound as the election comes up this week.
EUR/USD: Currently trading at 1.1107
After weak US data, the euro reached a two-month high against the dollar at the end of the week. Monday’s releases included manufacturing PMI data, which came in worse than expected from Spain but better than expected from Italy, as well as m/m Factory Order, which met forecasts. Last night, Fed member Charles Evans spoke, indicating his continued preference for a 2016 rate increase.
The main releases for today include Spain’s Unemployment Change, which beat forecasts at -118.9K, as well as US trade balance and ISM non-manufacturing PMI, both of which are forecast to come in slightly worse than in the previous release. This may provide room for the euro to continue making gains against the dollar.
GBP/AUD: Currently trading at 1.9210
With the RBA dropping the cash rate to 2.00% this morning, we saw a sharp two-cent gain in favour of the Aussie as investors reacted to this news. However, this advance was short lived as RBA comments stated that further easing is highly unlikely unless the outlook worsens significantly. The gains were also dampened by Australia’s trade deficit falling below expectations, largely due to the dropping prices for iron ore and coal exports.
Today sees the release of UK PMI construction data, forecast to cool off on last month’s reading along with US trade balance today, forecasting the deficit to widen this month. We should therefore see a fairly volatile day.
GBP/NZD: Currently trading at 2.0073
Heading into the weekend, the rate reacted to Friday’s weaker-than-expected UK manufacturing PMI data and last week’s RNBZ statement. With no major data out yesterday, the rate remained in the 2.00-2.01 range.
This morning’s UK Construction PMI data, forecast to decrease slightly, may influence the morning session, while the later session will be shaped by the release of New Zealand’s Global Dairy Trade Price Index and anticipation of unemployment data, with q/q employment change forecast to come in at 0.7% and the unemployment rate expected to decrease slightly. We may see the rate remain range-bound, with room for fluctuations based on New Zealand’s data.
GBP/CAD: Currently trading at 1.8352
On Friday we learnt that UK Manufacturing PMI unexpectedly slowed last month, with the index falling to a seven-month low of 51.9, from 54 in March. The loonie was able to capitalise and went on to bank gains throughout the day.
Today’s focus will be on UK Construction PMI data in the early session, with analysts predicting a slight decline from last month. This along with a positive shift in the Canadian Trade balance should provide the loonie with added support today.
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