Not-so-Dovish Down Under

The Aussie dollar rallies after the RBA maintain their tightening bias as focus shifts to today’s PMI figures from the eurozone, UK and US.

Previous Day's Market Highlights

The dollar recorded its third straight day of gains against a basket of peers, adding 0.35%, as a lack of major economic data releases failed to stimulate investors’ interest and the market paused for thought after last week’s dovish Federal Reserve and US-China trade talks. The main economic data of the day came from the UK, with construction PMI figures missing forecasts and falling to the lowest level since April 2018 after optimism moderated and employment growth in the sector fell to a two-and-a-half year low. Despite the data miss, sterling traded flat on the day with no Brexit-related headlines filtering through into the market to drive the pound.
 
Elsewhere, producer prices in Europe fell to their lowest level in just under a year in a further example of slowing inflation in the eurozone while factory orders in the US also fell. The latter decreased at a rate of 0.6% on a month-on-month basis, the second straight decrease, likely adding to fears over a slowing of the industrial segment of the US economy. Overall, the Australian dollar was the weakest major currency as investors took risk off the table ahead of the RBA meeting and commodity prices fell while the Japanese yen also slid, with the dollar reaching a year-to-date high against the Asian currency. Also of note, Chinese markets will be closed all week for the Lunar New Year.
 
Away from FX, European equity markets had a mixed day, with the German DAX losing 0.3% but the UK’s FTSE 100 adding 0.15%, while US markets rallied with technology shares leading the way. The benchmark S&P 500 closed bear session highs, adding a shade under 0.7%. Finally, oil had a poor day with both Brent and WTI losing more than 3% - the latter experiencing its biggest drop in a week.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1415 1.1604 1.1035 4.90%
GBP/USD 1.3045 1.3218 1.2667 4.17%
EUR/USD 1.1425 1.1570 1.1289 2.43%
GBP/AUD 1.7975 1.8522 1.7613 4.91%
GBP/NZD 1.8920 1.9426 1.8603 4.24%
GBP/CAD 1.7112 1.7498 1.6756 4.24%

Today's Market Highlights

Overnight, the Reserve Bank of Australia (RBA) kept interest rates on hold, as expected, while reaffirming that low rates are helping to stimulate the economy and that progress towards the bank’s inflation target will be “gradual”. Despite the unchanged language, the RBA did downwarldy revise their growth forecasts to the year, becoming the latest central bank to flag downside risks to their economy. In reaction to the meeting, the Aussie dollar rallied by around 0.5% as the RBA were less-dovish than investors had anticipated. 

Looking ahead to the European session, focus will once again turn to the latest set of PMI figures for the services industries in the euro-area and the UK. While both indicators are set to remain in expansionary territory, consensus expectations are for a moderation in the pace of expansion in the UK largely due to ongoing business concerns over the Brexit impasse. In contrast, despite recent concerns over an economic slowdown, figures for the eurozone are expected to remain firm at 50.8.
 
Also in focus will be non-manufacturing PMI figures from the US which, after last month’s sharp fall of 3 index points, are expected to slide further to 57.1. Such a fall is likely to be put down to the government shutdown and ongoing trade tensions hurting sentiment across the services industry in the US. Also on the radar of investors today is set to be retail sales figures from the eurozone for the crucial Christmas period in addition to similar figures from a private US survey of retailers. The US will also auction 3-year Treasury notes later in the evening.

Finally, central bank speakers come back into the limelight with the ECB’s Praet and Fed’s Mester both scheduled in addition to a planned overnight speech from RBA governor Lowe in reaction to this morning’s rate decision.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:00 EUR Services PMI 50.8 50.8
09:30 GBP Services PMI 51.0 51.2
10:00 EUR Retail Sales (m/m) -1.6% 0.6%
15:00 USD ISM Non-Manufacturing PMI 57.1 58.0