Exemption From US Tariffs Boosts Australian Dollar Demand

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Headlines

  • Australian Tariff Exemption Limited AUD Exchange Rate Downside – Trade war fears failed to weigh on Australian Dollar demand
  • Continued BoE Hawkishness Unable to Boost Pound – GBP exchange rates lost further momentum
  • US Dollar Weakened on Threat of Retaliatory Chinese Tariffs – Concerns remain over future of US economy
  • CAD Gains Limited Despite Higher-Than-Forecast Canadian Inflation – Strengthening oil prices to support Canadian Dollar

Australian Dollar

Confirmation that Australia will be exempted from US tariffs on steel and aluminium, at least temporarily, encouraged the Australian Dollar to strengthen ahead of the weekend. While fears of an imminent trade war between the US and China weighed on market sentiment this failed to particularly dent AUD exchange rates. A softer US Dollar helped to offset the impact of trade war concerns, although the gains of the Australian Dollar were somewhat fragile as a result.

Worries over the increasingly protectionist outlook of the US could return AUD exchange rates to a softer footing today, with risk appetite still rather fragile.

Sterling

GBP exchange rates remained on a generally weaker footing on Friday, continuing to unwind some of the week’s earlier gains. As there was little expectation for any major developments regarding Brexit at the EU summit there appeared little reason to favour the Pound. Even though Bank of England (BoE) policymaker Gertjan Vlieghe opted for a fairly hawkish tone in his latest comments this was not enough to shore up Sterling, with markets already considering the odds of a May interest rate hike fairly priced into GBP.

As UK mortgage approvals are forecast to have dipped on the month in February the appeal of the Pound is unlikely to pick up at this stage.

Euro

The single currency reacted positively to the announcement that the EU would not be subjected to US tariffs on steel and aluminium for the time being. However, this concession failed to particularly diminish the prospect of trade relations between the Eurozone and the US souring further in the months ahead. As a result the Euro struggled to find particular traction against many of the majors, losing earlier momentum heading into the weekend.

With no change forecast for the finalised French gross domestic product figure the potential for Euro volatility appears a little limited at the start of the week.

US Dollar

An unexpectedly strong rebound in US durable goods orders was unable to shore up USD exchange rates during Friday’s European session. Even though this offers further evidence that the world’s largest economy is strengthening the impact of the data was limited by the latest speculation over the prospect of a US-China trade war. With tit-for-tat tariffs having the potential to dent US economic growth the appeal of the US Dollar naturally diminished on the back of the administration’s latest belligerent rhetoric.

Improved Chicago and Dallas Fed activity indexes may still offer support to the US Dollar overnight, however.

Canadian Dollar

Although the Canadian consumer price index strongly bettered forecast, accelerating from 1.7% to 2.2% on the year, CAD exchange rates struggled to capitalise on this positive data. In part this was thanks to an underwhelming retail sales figure, which failed to reverse the previous month’s contraction. Even Brent crude breaking back above the US$70 per barrel mark was not enough to set the Canadian Dollar on a bullish run.

However, if oil markets remain in a more optimistic mood at the start of the week this could help to keep CAD exchange rates from seeing any particular declines.

New Zealand Dollar

Confidence in the New Zealand Dollar largely improved on Friday in spite of the latest deterioration in trade relations between the US and China. The ‘Kiwi’ benefitted from the relative weakness of the US Dollar, even in the wake of the previous day’s less-than-hawkish Reserve Bank of New Zealand (RBNZ) interest rate decision.

Some volatility could be in store for NZD exchange rates today as New Zealand finance minister Grant Robertson and incoming RBNZ Governor Adrian Orr sign the new Policy Targets Agreement.

Data Released

March 26th 07:45 NZD Trade Balance (FEB)
March 26th 16:45 EUR French Gross Domestic Product (QoQ) (4Q F) 0.6%
March 26th 18:30 GBP BBA Loans for House Purchase (FEB) 36,550
March 26th 22:30 USD Chicago Fed National Activity Index (FEB) 0.19
March 27th 00:30 USD Dallas Fed Manufacturing Activity (MAR) 33.4

Post by TorFX

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