Fears of No-Deal Brexit Fail to Halt Pound Rally

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  • Sharp Decline in Building Approvals Weighs on AUD Exchange Rates – Weaker trade data could exacerbate Australian Dollar softness
  • Pound Strengthens in Spite of Theresa May’s Brexit Comments – Markets unfazed by May’s willingness to leave EU without a deal
  • New Zealand Dollar Slumps After Disappointing Commodity Price Index – Signs continue to point towards weaker economic outlook
  • Italian Government Revises Budget Plans – Euro remains on weaker footing as plans still conflict with EU rules

Australian Dollar Under Pressure After Building Approvals Contraction

Yesterday’s services PMI was overshadowed by an unexpectedly sharp contraction in building approvals, which slumped -13.6% on the year in August. This latest sign of weakness within the Australian construction sector put AUD exchange rates under renewed pressure. Even though the service sector demonstrated steady growth on the month this was not enough to encourage investors, leaving the Australian Dollar to trend lower across the board.

AUD exchange rates could cede further ground this morning if August’s trade data shows a narrowed surplus, with the global trade outlook still muted.

Pound Shakes Off Weaker Services PMI

A disappointing UK services PMI was not enough to knock the Pound off a bullish trend last night. Although the figure fell short of forecast the index remained well within growth territory at 53.9, suggesting that the economy is still on track for another quarter of modest expansion. In the wake of Theresa May’s speech at the Conservative Party conference the mood towards Sterling remained positive, even after May reiterated a willingness to leave the EU without a deal.

If Conservatives continue to express dissatisfaction with May’s leadership, however, GBP exchange rates could easily return to a downtrend.

Euro Struggles to Capitalise on Italian Budget Alterations

Confidence in the Euro picked up on the back of reports that the Italian government was altering its budget plans, lowering its projected deficits for 2020 and 2021. Even so, the government is still at odds with EU budget rules with its target of a 2.4% deficit in 2019. As markets expressed scepticism over Italy’s gross domestic product forecasts worries over the country’s financial future persisted.  This limited the potential for EUR exchange rates to recover ground, especially as demand for the US Dollar increased.

An uptick in the German construction PMI could offer the Euro a boost today, with investors likely to greet any signs of strength within the Eurozone’s powerhouse economy.

Strong Service Sector Growth Bolsters US Dollar

USD exchange rates benefitted after the ISM non-manufacturing composite index delivered a surprise increase on the month, rising from 58.5 to 61.6. This improvement indicates that the world’s largest economy is continuing to experience solid growth, in spite of the Trump administration’s trade tariffs. September’s ADP employment change figure also offered the US Dollar cause for confidence, with a sharp uptick boosting hopes for Friday’s non-farm payrolls data.

As forecasts point towards a significant rebound in US factory orders on the month the US Dollar could find further support overnight.

Rising US Oil Inventories Weigh on Canadian Dollar

Demand for the Canadian Dollar faltered in the wake of the latest US crude oil inventories report, which revealed a sharp increase in stockpiles. As nearly 8 million barrels were added to US supplies in the last week the oil market came under fresh pressure, weighing heavily on the price of Brent crude. This dragged on the commodity-correlated Canadian Dollar as market relief from the agreement of the new US-Canada trade deal faded.

Even so, a solid improvement in September’s Ivey PMI could shore up CAD exchange rates as confidence in the domestic outlook strengthens.

NZD Exchange Rates Slump on Commodity Price Index Contraction

Another sharp monthly contraction in the ANZ commodity price index left the New Zealand Dollar trending lower against its rivals yesterday. Investors were discouraged to find that the price index had contracted -1.8%, underlining the weaker outlook of the New Zealand economy. With market risk appetite easing NZD exchange rates were left on the back foot once again.

In the absence of any fresh domestic data today the mood towards the New Zealand Dollar is likely to remain generally bearish.

Data Released

October 4th 11:30 AUD Trade Balance (AUG) 1.4 billion
October 4th 17:30 EUR German Construction PMI (SEP) 52.9
October 5th 00:00 CAD Ivey Purchasing Managers Index (SEP) 62.3
October 5th 00:00 USD Factory Orders (AUG) 2.2%

Post by TorFX

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