Brexit Impasse Limits Pound Sterling Demand

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  • Rising Global Tensions Keep Stock Markets Under Pressure – Australian Dollar benefits from USD weakness
  • Pound Slides as Brexit Negotiations Stall – Investors unimpressed as May rejects EU’s Irish border proposals
  • Solid Services PMI Boosts New Zealand Dollar – Further gains possible on accelerating third quarter consumer price index
  • Oil Prices Rise as US-Saudi Tensions Mount – Canadian Dollar strengthens on prospect of decreased Saudi production

Market Jitters Fail to Weigh Down Australian Dollar

Stock markets continued to trend lower yesterday, limiting the appeal of risk-sensitive currencies as worries over deteriorating relations between the US and Saudi Arabia weighed on sentiment. However, this was not enough to drive the Australian Dollar lower against its rivals. Underwhelming US data helped to dent the US Dollar, benefitting AUD exchange rates even though the odds of another 2018 Federal Reserve interest rate hike remain elevated.

Support for the Australian Dollar could fade this morning, though, if the latest Reserve Bank of Australia (RBA) meeting minutes proves more dovish in nature.

Brexit Talks Stall to Leave Pound on Back Foot

Theresa May’s rejection of key EU proposals over the Irish border issue left Brexit negotiations in a state of stalemate at the start of the week. This naturally disappointed investors who had hoped to see the two sides reach an agreement ahead of the October EU summit. As a result, the Pound came under fresh pressure yesterday as the odds of a no-deal Brexit appeared to pick up once again.

Confidence in the Pound may recover this evening if August’s average weekly earnings figure holds steady as forecast, pointing towards further wage growth.

Euro Struggles as Italian Budget Battle Rumbles On

EUR exchange rates remained under pressure as tensions over the controversial Italian budget proposal persisted. With Italian officials due to present the plans to the European Commission for approval further political jitters look likely. If Italy sticks by its decision to break EU budget rules the mood towards the Euro looks set to deteriorate, with markets still wary of the prospect of a fresh Eurozone debt crisis.

A weakening of the German ZEW economic sentiment index looks set to encourage further Euro losses this evening.

US Dollar Fails to Sustain Bullishness in Spite of Risk Aversion

Although safe-haven demand picked up this failed to keep the US Dollar on a stronger footing overnight. The US Dollar was unable to hold onto its earlier bullishness even as worries over the outlook of the global economy increased. USD exchange rates also took a dent from September’s advance retail sales data, which failed to accelerate as far as forecast. While October’s empire manufacturing index picked up investors saw little reason to favour the US Dollar.

A slowdown in September’s US industrial production data may drive further losses for USD exchange rates tonight.

Canadian Dollar Benefits From Oil Market Optimism

The Canadian Dollar was able to shake off an unexpected contraction in September’s Canadian existing home sales. While the domestic housing market continued to demonstrate signs of weakness CAD exchange rates benefitted from a general uptick in oil prices. Deteriorating political relations between the US and Saudi Arabia helped to shore up the oil market, with investors anticipating a potential decrease in Saudi production.

If oil markets lose confidence today, however, the Canadian Dollar looks vulnerable to selling pressure.

Expanding Service Sector Boosts New Zealand Dollar Demand

The solid uptick in September’s New Zealand services PMI helped to set NZD exchange rates on an uptrend yesterday morning. As the index strengthened from 53.2 to 53.9 this signalled growth within the domestic service sector, boosting confidence in the health of the wider economy. This positive data is likely to further undermine the case for the Reserve Bank of New Zealand (RBNZ) to cut interest rates.

Further gains may be in store for the New Zealand Dollar if the third quarter consumer price index improves as forecast.

Data Released

October 16th 08:45 NZD Consumer Price Index (YoY) (3Q) 1.7%
October 16th 11:30 AUD Reserve Bank of Australia Meeting Minutes 
October 16th 19:30 GBP Average Weekly Earnings (3M/YoY) (AUG) 2.6%
October 16th 20:00 EUR German ZEW Economic Sentiment Index (OCT) -12
October 17th 00:15 USD Industrial Production (MoM) (SEP) 0.2%

Post by TorFX

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