Euro Struggles in Spite of Widening German Trade Surplus

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Headlines

  • Improved Business Confidence Supports Australian Dollar – Weak consumer confidence may drag on AUD exchange rates
  • Euro Fails to Benefit From Widened German Trade Surplus – Concerns over Italy continue to dominate EUR outlook
  • Fed Policymaker Comments Limit US Dollar Demand – Dallas Fed President calls for patient and gradual interest rate hikes
  • New Zealand Dollar Softens in Response to Sharp Truckometer Contraction – Signs still point towards weaker domestic growth


Strengthening Business Confidence Boosts Australian Dollar

An uptick in September’s NAB business confidence index offered support to AUD exchange rates yesterday. As the index climbed from 4 to 6 this indicated that sentiment within the Australian economy is improving, albeit slowly. Although the IMF lowered its global growth forecasts overnight this was not enough to knock the Australian Dollar back. However, lingering worries over the global trade outlook continue to hang over the antipodean currency, limiting the potential for AUD exchange rate gains.

If the Westpac consumer confidence index shows a similar improvement on the month in October this could give the Australian Dollar a stronger rallying point.

Pound Softens as IMF Downgrades Growth Forecasts

Investors were not encouraged by the IMF’s decision to lower its UK growth forecast, especially as the Fund also warned the Bank of England (BoE) to take a more cautious view on monetary policy. In the absence of any fresh progress on Brexit markets anxieties over the possibility of the UK leaving the EU without a deal persisted. A surprise contraction in September’s British Retail Consortium (BRC) like-for-like sales added to the muted mood of Sterling.

As forecasts point towards a loss of momentum in August’s monthly gross domestic product reading GBP exchange rates could see a sharper slump this evening.

Widened German Trade Surplus Fails to Boost Euro

A better-than-expected widening of the German trade surplus in August was not enough to boost the Euro yesterday. While the headline figure showed improvement this was driven by a sharp decline in import volumes, with demand for German exports remaining decidedly muted. This kept the single currency under pressure as investors continue to doubt the underlying strength of the Eurozone’s powerhouse economy.

As long as tensions between the Italian government and EU officials show no signs of easing the Euro may struggle to find any support against its rivals.

Cautious Fed Comments Limit US Dollar Upside

September’s NFIB small business optimism index offered the US Dollar little in the way of encouragement, easing from 108.8 to 107.9. USD exchange rates also came under pressure overnight thanks to the latest commentary from Dallas Fed President Robert Kaplan. As Kaplan indicated that patient and gradual interest rate hikes are required in the coming year the odds of an imminent hike declined. While markets still expect the Federal Reserve to continue tightening monetary policy this was not enough to protect the US Dollar in the short term.

Similarly cautious sentiment from other Fed policymakers could put the US Dollar under greater pressure this week.

Weakening House Building Leaves Canadian Dollar Under Pressure

A monthly decline in housing starts left CAD exchange rates on a weaker footing, with confidence in the health of the Canadian housing market diminishing. Although oil prices picked up once again this was not enough to shore up the Canadian Dollar at this stage, particularly as further market jitters look likely. As markets see little cause for confidence in the outlook of the Canadian economy CAD exchange rates remained biased to the downside.

If August’s building permits data also proves disappointing the Canadian Dollar is likely to cede further ground tonight.

Sharp ANZ Truckometer Contraction Weighs on New Zealand Dollar

In another negative sign for the New Zealand economy the ANZ truckometer index contracted -2.6% on the month in September. This suggests that domestic growth is still struggling to pick up, with the index indicating a reduction in freight traffic. Without the support of any sense of market risk appetite the New Zealand Dollar naturally softened over the course of the day.

An easing in domestic retail card spending may leave NZD exchange rates exposed to additional downside pressure this morning.


Data Released

October 10th 07:45 NZD Retail Card Spending (MoM) (SEP) 0.6%
October 10th 09:30 AUD Westpac Consumer Confidence (OCT) 
October 10th 18:30 GBP Gross Domestic Product (MoM) (AUG) 0.1%
October 10th 22:30 CAD Building Permits (MoM) (AUG) -0.5%

Post by TorFX

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