Australian Dollar Rallies as US Steps Back from China Trade Clash

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Headlines

  • AUD Up – US pursues less confrontational approach on Chinese trade clash
  • EUR Down- Merkel Allies Threaten Mutiny over Migrant Laws 
  • GBP Down – Markets digest BoE words of caution regarding Brexit
  • USD Up – Upbeat US trade balance data supports the Greenback


Australian Dollar

The Australian Dollar (AUD) made a surprising recovery on Wednesday, climbing against the majors as investors responded to news that the Trump administration is considering moving away from plans for a blanket ban on Chinese firms investing in US companies.

Instead, it would seem that the US government will push Congress to strengthen the Committee on Foreign Investment (CFIUS) panel in order to better protect intellectual property rights.

This approach has been deemed less confrontational and helped to ease market anxieties regarding a trade war with China, thus returning demand to the ‘Aussie’ Dollar.

Lacking significant Australian data releases today investors will instead remain focused on the performance of the ‘Greenback’ and global trade relations.

Sterling

The Pound (GBP) came under pressure against the majors yesterday as investors responded to words of caution in the latest Bank of England (BoE) financial stability report.

The bank stressed that while progress had been made in preparing the UK’s financial sector for Brexit, various ‘material risks’ remained.

These included concerns that the EU had not made efforts to provide temporary permissions for UK trade entities, something that could pose a significant risk to the transferring of contracts or the restructuring of businesses post-Brexit. 

Euro

The outlook for the Euro (EUR) is currently rather gloomy, with investors concerned that German Chancellor Angela Merkel’s coalition could collapse if an agreement is not reached soon regarding asylum laws.

The Chancellor is essentially at loggerheads with her Interior Minister Horst Seehofer, leader of the Bavarian CSU party, with Mr Seehofer seeking to turn away migrants at the German border if they have registered elsewhere in the EU.

Merkel has flatly rejected these plans, but Mr Seehofer has expressed his intentions to do so anyway.
If the two parties cannot reconcile then Merkel’s coalition could collapse, likely bringing the Euro significantly lower.

US Dollar

The US Dollar (USD) traded broadly higher yesterday, bolstered by a run of upbeat US ecostats.

The most significant of these were the durable goods orders reading for May and the advance goods trade balance, with the former recovering from -1.0% to -0.6% and the latter from -$67.3b to -$64.8b.

Both of these readings were above expectations and helped to add to the current wave of economic optimism supporting the ‘Buck’.

Today, investors will continue to monitor the trade situation with China, whilst also assessing the latest in US jobless claims and GDP figures (with both results due in the evening).

Canadian Dollar

The Canadian Dollar (CAD) made a solid recovery yesterday into today, rising as market risk appetite returned, thanks to the respite in US-China trade aggravations. 

Investors still do not expect a breakthrough in NAFTA negotiations, nor do they expect a rate rise in July from the Bank of Canada - but investors are hopeful that easing trade tensions will push the Bank’s Governor, Stephen Poloz, to be more optimistic about the future of the Canadian economy.

New Zealand Dollar

The New Zealand Dollar (NZD) did not see the same recovery as other commodity-based currencies yesterday, instead trading within a narrow band against the majors as markets responded to a recent contraction in New Zealand business confidence. 

The New Zealand business confidence survey for June slid from a score of -27.2 to -39.0, whilst the activity outlook contracted from 13.6 to 9.4.

Looking ahead, investors will soon be digesting the Reserve Bank of New Zealand’s latest rate decision - although analysts do not predict a rate rise on this occasion. 

Data Released

28th June 07:00 NZD RBNZ Official Cash Rate
28th June 16:00 EUR German Consumer Conifdence 
28th June 19:00 EUR ECB Economic Bulletin
28th June 22:30 USD US Jobless Claims
28th June 22:30 USD Gross Domestic Product Annualized

Post by TorFX

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