Aussie growth beats quarterly estimates
The Australian dollar regained some strength in early trade today after the release of Australian economic growth data, which showed 0.4% growth in the three months to June and 2.1% annual growth. Both results beat the market forecasts but it means the annual growth rate slipped from 2.4% in the first quarter. The GBP/AUD exchange rate, which had pushed as high as AUD 1.9735 by the end of yesterday, is down to AUD 1.9665 this morning. We will get two speeches from the governor of the Reserve Bank of Australia overnight tonight and we will see the release of Australian Building Approvals and the trade balance. The forecasts for the data are mixed but any hints from Governor Lowe about how the GDP numbers affect the thinking of the RBA, will be seized upon by the markets.
Euro weaker on German factory orders
German factory orders contracted by 11.7% in the month of August. That is substantially worse than the 4.0% contraction the markets had forecast and the sharpest downturn since June 2020. As we all know, Germany is the manufacturing powerhouse of the eurozone, so it is no surprise the euro lost ground this morning. The EUR/USD rate is down to $1.0725 and the GBP/USD rate has pushed above €1.17 for the first time in a fortnight. This comes on the back of Tuesday’s release of a swathe of negative Purchasing Managers Indices from across the eurozone, all adding to the pressure on the European Central Bank to stop damaging the economy by tightening monetary supply. We lack any kind of hard data from the eurozone for the rest of the day but we do have speeches from ECB members and Bundesbank members. So there is the potential for further volatility on the back of their words.
Canadian interest rates decision – ‘on hold’ expected
The Bank of Canada will make a decision on the Canadian base rate today. It is highly likely they will leave their benchmark rate on hold at 5%. The pace of interest rate increases has slowed in the last six months and, as they paused for two months in March and April, a pause at this juncture cannot be read as the end of interest rate rises. It may simply be another opportunity for the BOC to pause for reflection and to reassess data. The GBP/CAD exchange rate is fairly volatile ahead of this announcement but within a relatively narrow range between CAD 1.71 and CAD 1.72. There are other factors that could influence this exchange rate today. Most notably recent support for the US dollar, which is pinning the GBP/USD rate down to some of the lowest levels we’ve seen in more than two months. Be prepared for a surprise from the BOC though. Recent Canadian data has been fairly mixed, so we cannot rule out another small rate cut or a small rate hike at this stage.