Deteriorating US-China Trade Relations Weigh on Australian Dollar

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  • Trade War Fears Weighed Heavily on Australian Dollar – International trade relations soured in the face of fresh US tariffs
  • Euro Shrugged Off Narrowed Eurozone Trade Surplus – Single currency recovered ground lost in the wake of the ECB meeting
  • Surprise Manufacturing Sales Contraction Dented CAD Rates – Confidence in Canadian economy deteriorates
  • US Dollar Failed to Capitalise on Risk Aversion – Mixed domestic data limits USD upside

Australian Dollar

As global trade tensions picked up again in the wake of the US decision to impose additional tariffs on China the mood towards the Australian Dollar naturally soured. With China looking set to respond with equivalent retaliatory measures the prospect of a full-blown trade war continued to mount. This weighed heavily on the risk-sensitive Australian Dollar, with the domestic economy looking set to suffer if international trade relations deteriorate further.

Unless tensions show signs of easing AUD exchange rates look set to remain on a weaker footing at the start of the week.


Confidence in the Pound recovered somewhat ahead of the weekend, even in the absence of any fresh domestic data. As the initial negative reaction to May’s UK retail sales data faded this encouraged investors to buy back into Sterling once again. Even so, GBP exchange rates remain exposed to downside pressure thanks to persistent uncertainty over the likely outcome of Brexit negotiations and the future shape of the relationship between the UK and EU.

Ahead of Thursday’s Bank of England (BoE) policy announcement the Pound is likely to see some volatility.


Although the Eurozone trade surplus narrowed further than forecast in April this failed to drag the Euro lower on Friday. Investors were encouraged by confirmation that the Eurozone consumer price index picked up sharply to 1.9% on the year in May, indicating an increase in domestic inflationary pressure. This helped to reverse some of the negative impact of the previous day’s European Central Bank (ECB) policy meeting.

However, fresh commentary from ECB President Mario Draghi may put renewed pressure on the single currency tomorrow.

US Dollar

US data proved rather mixed in nature on Friday, with a leap in the University of Michigan sentiment index contrasting a surprise slump in both industrial and manufacturing production. All in all, this offered little incentive to favour the US Dollar, even though confidence in the prospect of further Federal Reserve monetary tightening remains. The Trump administration’s decision to impose a 25% tariff on $50 billion of Chinese imports did nothing to shore up USD exchange rates, meanwhile.

A steady showing from tonight’s NAHB housing market index is unlikely to be enough to prompt a significant rally for the US Dollar.

Canadian Dollar

CAD exchange rates extended their slump heading into the weekend as April’s manufacturing sales data proved significantly weaker than forecast. Markets were caught off guard by the -1.3% contraction in sales on the month, something which suggests that the Canadian economy is in a less robust state of health. Even though the latest existing home sales figure bettered expectations this was not enough to shore up the Canadian Dollar.

Developments in the oil market are expected to provoke further movement for CAD exchange rates in the near term.

New Zealand Dollar

While the New Zealand manufacturing PMI remained firmly within expansion territory May’s reading still proved disappointing. As the index dipped from 59.1 to 54.5 on the month this raised concerns that the economy is struggling to hold onto any particular growth momentum. This left NZD exchange rates under pressure, especially as market risk sentiment soured.

A similar showing from today’s services PMI may give NZD exchange rates another nudge lower this morning.

Data Released

June 18th 08:30 NZD Services PMI (MAY) 
June 19th 00:00 USD NAHB Housing Market Index (JUN) 70

Post by TorFX

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