Australian Dollar Struggles to Capitalise on Easing Trade War Concerns

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Headlines

  • Easing Trade War Fears Kept Floor Under Australian Dollar – Weaker housing market may dent ‘Aussie’
  • Surprise Revision to French GDP Boosted EUR Exchange Rates – Markets encouraged by signs of stronger growth
  • US Dollar Faltered After Poor Dallas Fed Manufacturing Index – Confidence in US economic outlook remains muted
  • NZD Pushed Higher as RBNZ Mandate Saw Little Change – Risk appetite continues to support ‘Kiwi’

Australian Dollar

AUD exchange rates lacked any particular momentum at the start of the week in the absence of any fresh domestic data. However, market risk appetite largely picked up in response to speculation that the US and China could still avert a trade war by agreeing new mutual trade measures. With the US Dollar coming under renewed pressure the Australian Dollar found some degree of support, keeping it on a stronger footing against its weaker rivals.

Unless the HIA new home sales figure shows a solid rebound on the month the ‘Aussie’ is unlikely to find any particular rallying point today.

Sterling

While the BBA loans for house purchase figure proved weaker than forecast in February this was not enough to prevent the Pound from reclaiming some of its lost ground on Monday. Although the domestic housing market still appears to be suffering something of a slowdown investors remain confident in the wider outlook, especially as the odds of Bank of England (BoE) policy action are still high. However, this level of bullishness leaves GBP exchange rates vulnerable to a fresh downtrend.

With no new UK data due for release today Sterling may struggle to maintain its upward momentum for long.

Euro

Confidence in the Euro generally improved in response to the latest bout of US Dollar weakness, benefitting from the negative correlation of the EUR/USD exchange rate. Investors were further encouraged by a surprise upward revision to the finalised fourth quarter French gross domestic product data. With growth found to have accelerated to 0.7% on the quarter this naturally boosted hopes for the outlook of the wider Eurozone economy.

As the German import price index is forecast to have contracted -0.3% on the month in February, however, the appeal of the Euro could diminish sharply this afternoon.

US Dollar

Speculation that the US and China could still avoid a full-blown trade war offered some support to the US Dollar, although this relief ultimately proved to be short-lived. With market risk appetite picking back up demand for the lower-yielding USD naturally declined. An unexpectedly sharp dip in the latest Dallas Fed manufacturing activity index also put pressure on USD exchange rates, undermining confidence in the health of the world’s largest economy.

An uptick in March’s consumer confidence index may see the US Dollar recover some of its lost ground, however.

Canadian Dollar

Even with the general mood of markets improving the Canadian Dollar was unable to find any particular demand overnight. While the odds of a global trade war were seen to ease the appeal of the commodity-correlated currency remained rather limited. In part this was due to Brent crude falling below the US$70 per barrel mark, with investors still jittery over the prospect of a potential breakdown in the unity of OPEC.

Unless oil prices show signs of recovery there is unlikely to be much reason to favour the Canadian Dollar in the near term.

New Zealand Dollar

The ‘Kiwi’ strengthened after February’s New Zealand trade balance unexpectedly returned to a state of surplus. NZD exchange rates were also boosted by the first appearance of new Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr and the central bank’s updated Policy Target Mandate. As the RBNZ’s mandate was not directly changed to adopt a focus on employment as well as inflation investors broadly greeted the news.

Even so, ongoing uncertainty over the global trade outlook is still expected to limit the upside potential of the New Zealand Dollar.

Data Released

March 27th 10:00 AUD HIA New Home Sales (MoM) (FEB)
March 27th 16:00 EUR German Import Prices (YoY) (FEB) -0.3%
March 27th 19:00 EUR Eurozone Business Confidence (MAR) 1.39
March 28th 00:00 USD Consumer Confidence Index (MAR) 131.0

Post by TorFX

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