Commodity Currencies Fall on USD Strength as Senate Approves Tax Bill

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Headlines

  • ‘Aussie’ Weakens on USD Strength – Domestic inflation data underwhelming
  • AUD GBP Tumbles as Brexit Negotiations Make Progress – UK government makes concessions on Irish border issue
  • AUD EUR Weakens on Falling Investor Confidence – US Dollar strength also weighs on Euro.
  • US Dollar Climbs as Trump Tax Bill Wins Senate Approval – President takes step towards biggest US tax reform in three decades.

Australian Dollar

A combination of uninspiring domestic data and US Dollar strength pressured the Australian Dollar lower yesterday. The latest TD Securities inflation estimate showed a slowdown on the month for consumer price growth, while company operating profits continued to decline on the quarter in Q3.

Markets will likely ignore today’s imminent PMIs and consumer confidence data, given that this afternoon sees the announcement of the latest decisions on monetary policy from the Reserve Bank of Australia (RBA).

Sterling

Theresa May was in Brussels in an attempt to progress Brexit talks far enough that EU leaders would agree to move discussion onto trade. The AUD/GBP exchange rate initially gained but then slumped after signs that the Prime Minister would achieve her aim. One of the sticking points since the UK offered a more acceptable payment for the divorce bill was the Irish border, but this appears to have been resolved. The UK government has agreed to keep the entire of Ireland under single market regulations to avoid having to implement customs checks along the Irish border.

The vital UK services PMI is set for release today. A rise here would boost the Pound, although a minor decline is forecast.

Euro

The Euro was pressured lower yesterday by the strength of the US Dollar and some disappointing domestic data. The latest Sentix investor confidence index fell further-than-expected to 31.1 instead of 32.7, while producer price growth slowed more-than-forecast to 2.5% from a downgraded 2.8% year-on-year in October.

Eurozone retail sales data is expected to show a month-on-month decline and a year-on-year slowdown, which could weigh on the Euro.

US Dollar

The US Dollar was on strong form yesterday, after the US Senate approved a bill to allow President Donald Trump to begin reforming the US tax system. The biggest shakeup of taxes in three decades, the reform is expected to give the US economy a boost, in part thanks to plans to near-halve corporation tax from 35% to 20%.

Markets will likely ignore this evening’s US trade balance data, given that the influential ISM non-manufacturing composite index is set for release shortly after midnight.

Canadian Dollar

The fact its commodity brethren were affected by cold risk appetite to a greater extent allowed the Canadian Dollar to post some bullish gains yesterday. However, the ‘Loonie’ didn’t have much to celebrate, what with data completely absent from the economic calendar and a large slump in crude oil prices further weighing on sentiment.

Canadian trade data is set for release tonight – economists are expecting a narrowing of the trade deficit, so the Canadian Dollar could enjoy a late boost.

New Zealand Dollar

Like the Australian and Canadian Dollars, the New Zealand Dollar was dragged lower yesterday by cool demand for risk appetite. Markets were busy flocking to the safer Pound Sterling and US Dollar, making risky assets largely unappealing.

If the upcoming Global Dairy Trade auction reveals another decline in dairy prices, this will be the fifth consecutive drop for New Zealand’s most lucrative commodity.

Data Released

December 4th NZD Dairy Auction Avg. Winning Price MT (DEC 05)
December 4th 13.30 AUD RBA Cash Rate Target (DEC 05) 1.50%
December 4th 19.30 GBP Markit/CIPS UK Services PMI (NOV) 55
December 4th 20.00 EUR Eurozone Retail Sales (YoY) (OCT) 1.6%
December 4th 23.30 CAD International Merchandise Trade (Canadian dollar) (OCT) -C$2.7b
December 5th 01.00 USD ISM Non-Manufacturing/Services Composite (NOV) 59

Post by TorFX

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