Australian Dollar Under Pressure As High Chinese Exports Boost Trade War Fears

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Headlines

  • Widened Trade Surplus Failed to Boost Australian Dollar – Sharp increase in Chinese exports increased risk of global trade war
  • Stagnating UK House Prices Weighed on GBP Exchange Rates – Dip in gross domestic product estimate may prompt further losses
  • Euro Slumped Despite ECB Dropping Easing Bias – Odds of imminent policy tightening remain slim
  • New Zealand Dollar Trended Lower After Weak Inflation Indicator – Confidence in ‘Kiwi’ unlikely to improve in near term

Australian Dollar

Even though January’s trade balance showed an unexpectedly strong improvement, returning to a state of surplus, this failed to particularly shore up AUD exchange rates. While the wider-than-forecast surplus suggests that the Australian economy is in a healthier state this was overshadowed by global trade war fears. As China posted a surprisingly strong leap in export volumes on the year this encouraged bets that the Trump administration will continue to express protectionist rhetoric.

Market concerns over potential retaliations to the US steel and aluminium tariffs are likely to keep the Australian Dollar on a softer footing.

Sterling

Unexpectedly, the RICS house price balance stagnated in February as the UK housing market continued to struggle. This gave investors fresh incentive to sell the Pound, highlighting concerns over the outlook of the wider UK economy. With UK and EU officials still taking rather different positions ahead of the next round of Brexit negotiations the underlying support for GBP exchange rates remains limited.

If the NIESR gross domestic product estimate for the three months to February demonstrates a loss of economic momentum, as forecast, Sterling is expected to weaken further.

Euro

EUR exchange rates saw some marked volatility in the wake of the European Central Bank’s (ECB) March policy meeting. As policymakers were found to have dropped the explicit easing bias from the accompanying announcement this prompted the Euro to surge higher. However, the single currency was unable to hold onto this bullishness for long, thanks to comments from ECB President Mario Draghi. As Draghi played down the implications of this change in language the odds of any imminent shift towards hawkishness seems rather limited.

With forecasts pointing towards a contraction in German imports on the month this could offer EUR exchange rates a rallying point this afternoon.

US Dollar

While the latest raft of US jobless claims figures proved a little mixed in nature the mood towards the US Dollar remained largely positive. Investors are still confident that February’s non-farm payrolls report will highlight a fresh dip in the unemployment rate, giving the Federal Reserve greater cause for confidence. Although the Trump administration continued to ratchet up its protectionist rhetoric this was not enough to keep USD exchange rates under pressure.

Any weakness in February’s average hourly earnings figures could weigh on the US Dollar, however, as Fed policymakers have expressed some reservations over softer wage growth.

Canadian Dollar

In spite of lingering uncertainties over the future of NAFTA and the ultimate impact of the more protectionist US approach to trade the Canadian Dollar was still able to gain ground on Thursday. This was largely the result of a better-than-expected building permits figure, which showed growth of 5.6% on the month rather than contracting -1.5% as forecast. With the domestic housing market still showing some signs of resilience the downside potential of CAD exchange rates was temporarily limited.

Signs of a tightening Canadian labour market may offer the Canadian Dollar fresh cause for confidence heading into the weekend.

New Zealand Dollar

Investors were not impressed to find that the ANZ truckometer had contracted -2.5% on the month in February. As this suggests that inflationary pressure within the New Zealand economy is still struggling to build the appeal of the New Zealand Dollar naturally diminished. Lingering worries over the prospect of an imminent global trade war also hampered the risk-sensitive ‘Kiwi’, losing out to the strengthening US Dollar once again.

As February’s retail card spending data is expected to show a significant slowdown on the month the New Zealand Dollar is unlikely to find any particular support today.

Data Released

March 9th 07:45 NZD Retail Card Spending (MoM) (FEB) 0.1%
March 9th 17:00 EUR German Trade Balance (JAN) 18.1 billion
March 9th 22:00 GBP NIESR Gross Domestic Product Estimate (FEB) 0.4%
March 9th 23:30 CAD Net Change in Employment (FEB) 21,000
March 9th 23:30 USD Unemployment Rate (FEB) 4.0%

Post by TorFX

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