Australian Dollar Strengthens After US Agrees to Postpone Chinese Tariffs

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  • AUD Exchange Rates Benefit as US Postpones Chinese Tariffs – Less optimistic RBA could weigh on Australian Dollar
  • Pound Falls as UK Manufacturing Exports See Second Consecutive Month of Contraction – Underlying health of UK economy remains muted
  • Italian Manufacturing Sector Contraction Weighs on Euro – Markets given fresh reason to doubt Italian budget proposal
  • Risk Appetite Helps New Zealand Dollar Sidestep Disappointing Trade Data – Signs still point towards weaker New Zealand economy

Thaw in US-China Trade Tensions Supports Australian Dollar

After the US agreed to postpone its proposed tariffs on Chinese imports for ninety days market risk appetite improved sharply. With trade tensions between the US and China showing some signs of easing the Australian Dollar was encouraged to trend higher across the board, even though it remains to be seen what will come of the agreement. This general improvement in market sentiment overshadowed the disappointing nature of November’s Australian manufacturing PMI, which slumped from 58.3 to 51.3.

If the Reserve Bank of Australia (RBA) sounds a more cautious note in today’s interest rate decision, though, AUD exchange rates could falter.

Pound Slumps as Signs Point Towards Weaker UK Business Confidence

An uptick in the UK manufacturing PMI failed to boost the Pound, even as the headline index jumped from 51.1 to 53.1. The underlying details of the report were less positive, with November’s growth driven by a modest increase in domestic demand as businesses started to stockpile in anticipation of Brexit. With business sentiment still weak and export orders falling for a second consecutive month GBP exchange rates slumped in the wake of the data.

Unless November’s construction PMI shows a significant acceleration on the month the mood towards the Pound is unlikely to improve markedly this evening.

Fresh Signs of Italian Contraction Weigh on Euro

Italy’s latest manufacturing PMI did not offer investors much cause for confidence, with the sector falling further into a state of contraction. The underwhelming performance of the Italian economy raises further questions over the viability of the government’s controversial 2019 budget proposal. With the wider Eurozone economy also showing signs of slowing in the fourth quarter the Euro came under further pressure yesterday as confidence in the domestic outlook continued to sour.

Tonight’s Eurozone producer price index data could offer the single currency a rallying point if signs point towards a higher level of inflationary pressure.

Strong Manufacturing Sector Fails to Shore up US Dollar

Following on from the stronger Chicago PMI November’s ISM manufacturing index picked up from 57.7 to 59.3, highlighting the continued resilience of the sector. However, this acceleration was not enough to give USD exchange rates a leg up overnight in the face of improved market risk appetite. As the US-China trade spat failed to escalate over the weekend demand for the safe-haven US Dollar diminished, even though there is some scepticism that the two sides will resolve their differences within the new timeframe.

Further signs of Federal Reserve caution could put further weight on USD exchange rates in the near term.

Solid Manufacturing PMI Boosts Canadian Dollar Demand

The latest Canadian manufacturing PMI showed an improvement on the month, strengthening to a solid 54.9 as the sector continued to expand. This naturally encouraged a greater sense of optimism in the outlook of the wider economy, giving the Canadian Dollar a boost against many of the majors. As Brent crude broke back above US$61 per barrel overnight this offered additional support to CAD exchange rates.

Even so, the Canadian Dollar may struggle to hold onto its gains for long if market sentiment shifts.

New Zealand Dollar Shakes Off Deteriorating Terms of Trade

New Zealand’s third quarter terms of trade index proved disappointing, showing a contraction of -0.3% on the quarter as import price inflation continued to outpace exports. While this does not bode overly well for the outlook of the economy the New Zealand Dollar still found support yesterday. The general improvement in market risk appetite helped to shore up NZD exchange rates even in the face of underwhelming domestic data.

However, unless investors remain in a risk-positive mood today the New Zealand Dollar looks vulnerable to selling pressure.

Data Released

December 4th 14:30 AUD Reserve Bank of Australia Rate Decision 1.50%
December 4th 20:30 GBP Construction PMI (NOV) 52.5
December 4th 21:00 EUR Eurozone Producer Price Index (YoY) (OCT) 4.5%

Post by TorFX

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