Fresh US Tariff Plans Weighed Heavily on Risk-Sensitive Australian Dollar

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Headlines

  • US-China Trade Tensions Escalated Further – Australian Dollar slipped as market sentiment soured
  • Split ECB Comments Encouraged Hopes of Greater Hawkishness – EUR exchange rate downside limited
  • US Dollar Struggled to Capitalise on Risk Aversion – Worries over outlook of US economy persist
  • CAD Exchange Rates Leapt in Response to BOC Rate Hike – Markets hope for further tightening in the months ahead



Australian Dollar

An unexpectedly large improvement in the Westpac consumer confidence index for July was not enough to boost the Australian Dollar for long. Demand for the commodity-correlated ‘Aussie’ came under pressure as a result of a fresh escalation in US-China trade tensions. As the Trump administration began the process to impose tariffs on an additional $200 billion of Chinese imports the mood of markets quickly turned sour. With commodity prices falling the Australian Dollar was left on the back foot.

Even so, with an uptick in July’s consumer inflation expectation figure AUD exchange rates could find a rallying point this morning.

Sterling

Demand for the Pound was fairly muted on Wednesday, with investors lacking any fresh domestic data to drive sentiment. With the threat of a leadership challenge against Theresa May seeming to have diminished for the time being, though, GBP exchange rates still saw limited downside yesterday. As markets remain optimistic that the UK is heading for a softer form of Brexit Sterling was able to hold onto a positive footing against many of the majors.

Further volatility could be in store for the Pound today in response to the latest Bank of England (BoE) credit conditions and bank liabilities surveys.

Euro

European Central Bank (ECB) policymakers demonstrated some disagreement over the likely timing of an interest rate hike. While some suggested that rates will not rise before October 2019 others implied that a July 2019 rate hike could be on the table. All in all, this painted an encouraging picture of increasing hawkishness at the ECB. Although global trade tensions mounted this was not enough to drag significantly on the single currency.

With forecasts pointing towards a solid increase in Eurozone industrial production the Euro may find additional gains this evening.

US Dollar

A larger-than-expected increase in May’s US producer price index did not offer particular encouragement to the US Dollar overnight. Investors remained largely preoccupied by the US tariff announcement, as well as its likely negative impact on domestic growth. As markets braced to see the response of the Chinese government the mood towards the US Dollar soured, even with market risk appetite generally heightened.

If the latest consumer price index shows a similar increase in inflationary pressure USD exchange rates may strengthen tonight.

Canadian Dollar

There was little surprise as the Bank of Canada (BOC) opted to raise interest rates by 25bpt at its July meeting. However, as policymakers warned that monetary policy may have to be tightened at a more rapid pace if global trade tensions worsen the appeal of the Canadian Dollar promptly picked up. Although worries remain over the future of NAFTA, given increasing US protectionism, CAD exchange rates trended sharply higher.

However, a weaker showing from today’s new housing price index may leave the Canadian Dollar on a softer footing once again.

New Zealand Dollar

Global trade worries weighed heavily on NZD exchange rates yesterday, with market risk appetite generally weakening. In the absence of any fresh domestic data there was little to prevent the New Zealand Dollar trending lower against its rivals. While the New Zealand economy is less exposed to developments in China than others the ‘Kiwi’ remains vulnerable to deteriorating risk sentiment.

Any weakening of June’s food price index would give NZD exchange rates further cause for weakness, with domestic inflationary pressure already showing signs of softness.


Data Released

July 12th 08:45 NZD Food Price Index (MoM) (JUN) 
July 12th 11:00 AUD Consumer Inflation Expectation (JUL) 
July 12th 18:30 GBP Bank of England Credit Conditions and Bank Liabilities Surveys 
July 12th 19:00 EUR Eurozone Industrial Production (YoY) (MAY) 2.3%
July 12th 22:30 CAD New Housing Price Index (YoY) (MAY) 1.0%
July 12th 22:30 USD Consumer Price Index (YoY) (JUN) 2.9%

Post by TorFX

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