Australian Dollar Falters After US Threatens Withdrawal from WTO

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Headlines

  • Australian Dollar Weakened by Fresh Escalation in Global Trade TensionsSteady manufacturing PMI to support ‘Aussie’
  • Lack of Progress on Key Brexit Roadblocks Dented Pound DemandMarkets continue to worry over prospect of no deal Brexit
  • EUR Exchange Rates Slumped on Surprise Eurozone Inflation Rate DipOdds of greater ECB hawkishness declined
  • Softening Consumer Confidence Kept New Zealand Dollar Under PressureImproved terms of trade could prompt NZD rally today


Australian Dollar

An uptick in the Chinese manufacturing PMI and steady Australian private sector credit data was not enough to shore up the Australian Dollar ahead of the weekend. While the Australian economy showed some signs of resilience this failed to outweigh the general deterioration in market sentiment on Friday. Investors were spooked by the Trump administration threatening to pull the US out of the World Trade Organisation (WTO), escalating fears of a greater breakdown in global trade relations and leaving AUD exchange rates on a weaker footing.

Even so, a steady showing from August’s manufacturing PMI may offer some degree of support to the Australian Dollar this morning.

Sterling

Confidence in the Pound generally soured as market worries over Brexit picked up once again. Although both Brexit secretary Dominic Raab and chief EU negotiator Michel Barnier sounded some notes of positivity in comments during a press conference on Friday this failed to encourage investors. The acknowledgement that key issues including the Irish border question and role of the European Court of Justice are still yet to be resolved left GBP exchange rates with little in the way of positive momentum.

Any signs of strength in August’s UK manufacturing PMI could give Sterling a fresh boost against its rivals, however.

Euro

The single currency came under renewed pressure as the Eurozone consumer price index unexpectedly declined, easing from 2.1% to 2.0% on the year in August. This suggests that inflationary pressure within the currency union is not as robust as investors and policymakers would like, undermining the odds of any increase in European Central Bank (ECB) hawkishness. Underwhelming German retail sales figures also weighed heavily on the Euro, highlighting vulnerability within the Eurozone’s powerhouse economy.

With no change forecast in the finalised Eurozone manufacturing PMI this is likely to have a limited impact on EUR exchange rates this afternoon.

US Dollar

Market jitters over trade continued to benefit the US Dollar, in spite of concerns over the negative implications for the US consumer and domestic growth. Investors were encouraged to pile back into the safe-haven US Dollar as trade talks between the US and Canada failed to progress at the pace markets hoped for. As both the Chicago purchasing manager index and University of Michigan consumer confidence index bettered expectations this gave USD exchange rates an additional leg up against their rivals.

With US markets closed for the bank holiday tonight, though, the US Dollar looks vulnerable to losses.

Canadian Dollar

While July’s Canadian producer price index saw a solid acceleration on the year CAD exchange rates failed to benefit from the improvement. The Canadian Dollar instead came under pressure thanks to trade developments, with US-Canada negotiations coming down to the wire ahead of the Trump administration’s Friday deadline. This limited the appeal of the risk-sensitive Canadian Dollar, especially as oil markets turned jittery.

Unless market risk appetite improves today CAD exchange rates are likely to remain on the back foot.

New Zealand Dollar

A fresh decline in the ANZ consumer confidence index left the New Zealand Dollar trending lower ahead of the weekend. Markets were not impressed by this latest evidence of economic weakness, with more cautious consumers unlikely to foster greater domestic growth. As market sentiment in general soured thanks to international trade worries support for NZD exchange rates proved limited.

As forecasts point towards an improvement in the second quarter terms of trade index, however, this may give the New Zealand Dollar a rallying point this morning.

Data Released

September 3rd 08:30    AUD    Manufacturing PMI (AUG)    52.1
September 3rd 08:45     NZD    Terms of Trade Index (QoQ) (2Q)    1.0%
September 3rd 18:00    EUR    Eurozone Manufacturing PMI (AUG F)    54.6
September 3rd 18:30    GBP    Manufacturing PMI (AUG)    55

Post by TorFX

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