Australian Dollar Hamstrung by Dovish RBA Minutes and US-China Trade Conflict

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Headlines

  • RBA minutes omit key line on monetary policy direction – RBA removes line claiming next rate change will be up, not down.
  • Euro troubled by dovish Draghi – ECB’s Draghi remarks in Sintra limit the single currency once again
  • CAD down on trade concerns – Falling crude oil prices also limit the ‘Loonie’
  • US Dollar surges ahead on trade worries – Investors expect the tariffs to raise US inflation


Australian Dollar

The Australian Dollar (AUD) tumbled against the majors on Tuesday and continued to struggle on Wednesday morning, falling as investors responded to a significant omission from the Reserve Bank of Australia’s (RBA) meeting minutes.

The central bank removed a key line that asserted the next move in the cash rate would be ‘up, rather than down’, effectively illustrating that officials are now increasingly tentative about tighter monetary policy measures.

In other news, market risk appetite is currently plummeting, with the US announcing plans for additional tariffs targeting $200bn in Chinese goods.

US President Trump announced that these would come into effect if China continues with its ‘unfair’ trade practices, sending investors scurrying to safe havens and leaving riskier currencies like the ‘Aussie’ Dollar in the doldrums.

Sterling

The Pound (GBP) posted a poor performance yesterday, shedding previous gains as political turmoil and worsening global trade relations throttled its lead.

UK Prime Minister Theresa May lost a vote regarding Brexit legislation in the House of Lords, with lawmakers backing an amendment that would ensure Parliament had a ‘meaningful vote’ on any proposed final deal with the EU.

This highlighted fractures within the government - with the divide raising tensions and reinforcing concerns that Sterling’s recovery could continue to be delayed.

It also diminished the possibility of the Bank of England (BoE) expressing hawkish sentiment on Thursday, with investors anxious that the bank will cite trade tribulations and a lack of progress in Brexit negotiations as areas of concern.
 
Euro

The Euro (EUR) tumbled yesterday into this morning, falling as European Central Bank (ECB) President Mario Draghi made some dovish remarks at the ECB Forum on Central Banking in Sintra, Portugal.

Mr Draghi’s opening speech reaffirmed sentiment expressed at last week’s rate decision, arguing that they must be ‘patient’ when determining the timing of the next rate rise.

Investors now do not expect a rate hike until after summer 2019.

On the data front, Eurozone construction output accelerated in April, but this release largely played second-fiddle to the ongoing concerns regarding trade and the current dovishness of the ECB.

US Dollar

The US Dollar (USD) stormed ahead on Wednesday morning, capitalising on the chaos of escalating trade tensions between Washington and Beijing.

Whilst this might seem counterintuitive, investors favoured the ‘Buck’ simply because the tariff measures could send US consumer price inflation soaring, therefore forcing the US Fed to raise interest rates to accommodate.

This positioned the US Dollar as a higher yielding asset in the eyes of traders.

Canadian Dollar

The Canadian Dollar (CAD) floundered this morning as oil prices traded sharply lower due to concerns that escalating trade tensions could harm the energy export sector.

Once again, there is very little going on in regards to Canadian data today, so we should see market focus stagnate on the state of NAFTA negotiations and the poor trade relations between the US and Canada.

Looking ahead, the outlook for the ‘Loonie’ is particularly gloomy, with the hawkishness of the US Fed liable to siphon demand away CAD.

New Zealand Dollar

The New Zealand Dollar (NZD) traded sheepishly yesterday, encumbered by dwindling market risk appetite and trade concerns regarding China and the US.

Looking ahead, today will feature the Westpac consumer confidence reading, followed by New Zealand’s current account GDP ratio score for Q1 this year.

If these continue to disappoint then we could see the ‘Kiwi’ Dollar extend its losses against the majors.

Data Released

20th June 08:00 NZD Westpac Consumer Confidence
20th June 08:00 NZD Current Account GDP Ratio
20th June 10:30 AUD Westpac Leading Index
20th June 23:30 EUR Draghi, Powell Kuroda and Lowe Speak in Sintra, Portugal

Post by TorFX

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