Pound May Overlook UK GDP Upgrade, Aussie Dollar Drops on Capex Data

The British Pound may not see follow-through on upgraded first-quarter UK GDP data. The Australian Dollar slumped overnight as soft capex data fueled RBA rate cut bets.

Talking Points:

• Australian Dollar Down as Capex Slump Fuels RBA Rate Cut Speculation

• British Pound May Not Find Follow-Through in Revised UK GDP Figures

• News-Flow from G7 Meeting Eyed for Guidance on Greece Funding Woes

The Australian Dollar underperformed in overnight trade, falling as much as 0.5 percent on average against its leading counterparts. The move followed a disappointing first-quarter Private Capital Expenditure reading.

The report showed capex spending fell 4.4 percent in the first three months of the year, marketing the largest drawdown since the third quarter of 2009. The currency’s decline tracked a drop in Australian front-end bond yields, suggesting the soft data set fueled RBA rate cut speculation.

The Yen briefly the lowest levels since 2002 against the US Dollar as Japan’s benchmark Nikkei 225 stock index spiked to a 15-year high, weighing on the safety-linked currency. Losses proved fleeting however as share prices reversed course.

The second revision of second-quarter UK GDP figures headlines the economic calendar in European trading hours. A slight upgrade showing output expanded 0.4 percent in the first three months of the year is expected. Initial estimates pointed to a 0.3 percent gain.

An upbeat outcome may prove supportive for the British Pound but follow-through seems unlikely to prove lasting considering the outcome’s limited implications for near-term BOE rate hike speculation. Indeed, the central bank’s latest quarterly Inflation Report suggested policymakers’ baseline assumption is for tightening to begin no sooner than mid-2016.

Traders will likewise continue to monitor news-flow emerging from the ongoing G7 finance ministers and central bank chiefs meeting in Dresden. The situation in Greece is likely to feature prominently in the discussion. The markets will be keen to gauge the tone of conversion considering the funding crisis’ formative impact on price action over recent days.