Collapsing Turkish Lira Boosts US Dollar Demand

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Headlines

  • Turkish Currency Crisis Prompted Wide Decline in Risk Appetite – Australian Dollar struggles to find support
  • Improved UK Growth Offended Limited Pound Gains – Brexit uncertainty continues to weigh on outlook
  • Rising Card Spending Boosted NZD Exchange Rates – Confidence in New Zealand economy improves
  • Canadian Dollar Failed to Capitalise on Falling Unemployment Rate – Wage growth shows signs of easing



Australian Dollar

The latest Reserve Bank of Australia (RBA) Statement on Monetary Policy did little to alter the outlook of AUD exchange rates ahead of the weekend. The Statement offered no surprises to investors in the wake of recent upbeat commentary from RBA Governor Philip Lowe. A general deterioration in market sentiment, meanwhile, dragged the Australian Dollar lower across the board as the unfolding currency crisis in Turkey worsened.

Unless investor sentiment picks up this morning the appeal of the Australian Dollar is likely to remain muted.

Sterling

While the second quarter UK gross domestic product showed a doubling of quarterly growth this failed to give the Pound a major boost on Friday. Although the economy showed signs of picking up after the disappointing growth of the first quarter GDP is still lagging significantly behind its long-term average. As the services sector remained the disproportionate driver of growth this did not encourage particular confidence in the resilience of the wider UK economy.

Any resurgence in Brexit-based uncertainty could prompt GBP exchange rates to push back towards their recent lows.

Euro

EUR exchange rates came under pressure on Friday thanks to the deepening crisis in Turkey as markets assessed the risk of spill over. Reports suggest that the European Central Bank (ECB) is increasingly concerned by the threat that the weakening Turkish Lira poses to European banks, with the risk of defaults on foreign-currency loans rising. A stronger US Dollar also weighed on the single currency as market jitters drove investors into the safe-haven currency.

Ahead of tomorrow’s German gross domestic product and inflation data the Euro could find some measure of support.

US Dollar

July’s US consumer price index data matched forecasts to hold steady at 2.9% on the year, giving the Federal Reserve further cause for confidence. While wage growth showed signs of weakness, with average weekly earnings stalling, this was not enough to dent the US Dollar. As tensions between Turkey and the US continued to escalate USD exchange rates pushed higher, benefitting from the wider deterioration in market risk appetite.

If US consumer inflation expectations show signs of softening this may limit the upside potential of USD exchange rates overnight.

Canadian Dollar

The Canadian unemployment rate fell further than forecast in July, dipping from 6.0% to 5.8% as part time employment increased sharply. This offered a boost to CAD exchange rates on Friday, even though hourly earnings showed signs of easing. As investor risk appetite declined in response to the Turkish crisis, however, the appeal of the Canadian Dollar was somewhat muted.

In the absence of any fresh domestic data today the Canadian Dollar could struggle to remain on a positive footing.

New Zealand Dollar

Even though a sense of risk aversion gripped markets ahead of the weekend this was not enough to keep the New Zealand Dollar under pressure. A better-than-expected retail card spending figure boosted confidence in the outlook of the New Zealand economy, suggesting that domestic sentiment is improving. A solid showing from July’s manufacturing PMI offered additional support to NZD exchange rates.

Further gains could be in store for the New Zealand Dollar this morning if the services PMI also prints positively.


Data Released

August 13th 08:30 NZD Services PMI (JUL) 
August 14th 01:00 USD Consumer Inflation Expectations (JUL) 

Post by TorFX

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