Euro Boosted by Unexpectedly Large Eurozone Trade Surplus

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Headlines

  • Mixed Australian Labour Market Data Kept Australian Dollar Under Pressure – RBA commentary may offer support today
  • Higher UK Retail Sales Failed to Encourage Pound Gains – Investors unconvinced that pace of growth will continue
  • Euro Trended Higher on Stronger Eurozone Trade Data – Currency union shrugs off impact of global trade tensions
  • NAFTA Worries Weighed on Canadian Dollar Demand – No change forecast for Canadian inflation tonight


Australian Dollar

July’s Australian labour market data failed to encourage greater confidence in the Australian Dollar, even as the headline unemployment rate unexpectedly improved. This strengthening was purely driven by a decline in the corresponding participation rate, with a significant number of Australians leaving the labour market. However, AUD exchange rates found some support overnight thanks to an easing in market worries surrounding Turkey and US-China trade relations.

Commentary from Reserve Bank of Australia (RBA) Governor Philip Lowe could offer the Australian Dollar additional support today, providing his tone leans more towards hawkishness.

Sterling

UK retail sales saw a strong improvement in July, reversing the contraction in monthly sales volumes seen in June. However, investors expressed doubt that the improvement was due to underlying factors rather than simply the result of the World Cup and warmer weather. This limited the positive impact on the Pound, especially in the wake of evidence that domestic wage growth remained limited in the second quarter.

GBP exchange rates look vulnerable to any fresh developments surrounding Brexit in the days ahead, with progress towards a deal still lacking.

Euro

A surprisingly sharp widening of the Eurozone trade surplus encouraged the Euro to push higher during Thursday’s European session. As the trade surplus widened from 16.5 billion to 22.5 billion this suggests that the currency union has shrugged off global trade tensions and worries over the protectionism of the Trump administration. With markets taking a more optimistic view of the Turkish financial crisis, albeit a cautious one, this offered a further boost to the single currency.

As the finalised Eurozone consumer price index is forecast to confirm an uptick in inflationary pressure this is likely to strengthen the footing of EUR exchange rates.

US Dollar

A mixed bag of US data saw USD exchange rates soften overnight, especially in the face of improved risk appetite. While the latest jobless claims data saw a better-than-expected decline this was counterbalanced by a disappointing housing starts figure. With the US housing sector showing continued signs of sluggishness the appeal of the US Dollar declined. Investors were also spooked by an unexpectedly sharp drop in the Philadelphia Fed business outlook index, which crumbled from 25.7 to 11.9.

With only a modest uptick forecast for the University of Michigan sentiment index the US Dollar could shed further ground tonight.

Canadian Dollar

Reports that NAFTA renegotiation progress is slowing prompted the Canadian Dollar to fall out of favour yesterday. Markets were not impressed by the prospect of trade talks taking longer to complete, with the Canadian economy still facing the threat of US tariffs. While June’s Canadian manufacturing sales data bettered forecast this was not enough to shore up CAD exchange rates at this juncture.

As no change is forecast for July’s Canadian consumer price index data the potential for a Canadian Dollar rally looks limited.

New Zealand Dollar

The general easing in market risk aversion helped to buoy the New Zealand Dollar on Thursday, even without any fresh domestic data on the calendar. News that Chinese officials will travel to the US in order to continue trade discussions later in the month offered NZD exchange rates a lift.

An additional boost could be in store for the ‘Kiwi’ this morning if the second quarter New Zealand producer price index data proves positive and points towards increasing inflationary pressure.


Data Released

August 17th 08:45 NZD Producer Price Index Output (QoQ) (2Q) 0.2%
August 17th 08:45 NZD Producer Price Index Input (QoQ) (2Q) 0.4%
August 17th 09:30 AUD Reserve Bank of Australia Governor Lowe Speech  
August 17th 19:00 EUR Eurozone Consumer Price Index (YoY) (JUL F) 2.1%
August 17th 22:30 CAD Consumer Price Index (YoY) (JUL) 2.5%
August 18th 00:00 USD University of Michigan Sentiment Index (AUG P) 98

Post by TorFX

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