Global Trade Worries Continue to Drag on Australian Dollar

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Headlines

  • Weaker Chinese GDP Weighed on Australian Dollar – Market risk appetite continued to diminish as IMF warns over global growth
  • Pound Faltered as May Prepared to Capitulate to Customs Bill Amendments – Investors concerned that softer Brexit approach may fall by the wayside
  • Narrowed Eurozone Trade Surplus Failed to Allay Growth Worries – Euro weighed down by prospect of further US protectionism
  • New Zealand Dollar Dented by Weak Services PMI – Rising NZ inflation forecast to boost ‘Kiwi’ today


Australian Dollar

A modest dip in China’s second quarter gross domestic product encouraged investors to pile out of the risk-sensitive Australian Dollar at the start of the week. As the IMF also issued a warning that a full-blown trade war could lead the global economy to shrink by 0.5% there was little incentive to favour the ‘Aussie’ on Monday. News that China has filed a fresh complaint with the WTO over the threat of further US tariffs also undermined market risk appetite.

A dovish tone from this morning’s Reserve Bank of Australia (RBA) meeting minutes may put additional pressure on AUD exchange rates.

Sterling

Demand for the Pound was somewhat muted as markets absorbed the latest developments surrounding Brexit, with Theresa May signalling a willingness to back down over elements of the customs bill. Reports that the Prime Minister would cave in to amendments made by hard-line Brexiteers left Sterling on a weaker footing. This raised concerns over the likelihood of a softer form of Brexit ultimately prevailing, suggesting that the Chequers proposals remain in jeopardy.

If wage growth shows any signs of slowing in this evening’s average weekly earnings data the Pound could weaken further.

Euro

Investors were not impressed to find that the Eurozone trade surplus had unexpectedly narrowed in May, easing from 16.7 billion to 16.5 billion. The dip confirmed that export volumes have continued to diminish, even though the details of the report revealed that the surplus with the US has widened. Worries over the prospect of the Trump administration taking fresh action against the EU, which Trump referred to as a ‘foe’, weighed down the single currency on Monday.

In the absence of any fresh domestic data today the Euro may struggle to return to a stronger footing.

US Dollar

Although US advance retail sales rose in line with forecasts this still represented a loss of momentum on May’s figure. With consumer confidence in the US showing signs of faltering the US Dollar was prompted to trend lower against many of the majors. Demand for the US Dollar also weakened in response to escalating trade tensions with China, which has still yet to announce its response to the threat of additional US tariffs.

A rebound in June’s industrial production figure may encourage USD exchange rates to push higher once again, however.

Canadian Dollar

A sharp uptick in June’s existing home sales offered support to Canadian Dollar exchange rates overnight, suggesting that the domestic housing market is in a stronger state than previously thought. The 4.1% increase indicates a greater level of confidence within the Canadian economy, giving the Canadian Dollar cause for optimism. However, with global trade concerns continuing to mount the upside potential of CAD exchange rates was still limited.

If Canadian manufacturing sales show a solid rebound in May this could offer the Canadian Dollar a stronger rallying point.

New Zealand Dollar

The New Zealand services PMI declined markedly on the month, easing from 57.1 to 52.8 as the sector came under pressure. This left the New Zealand Dollar on a generally weaker footing yesterday, particularly in the face of wider market risk aversion. Confidence in the outlook of the domestic economy remains muted, especially as global growth is forecast to slow in response to a US-instigated trade war.

However, if the second quarter New Zealand consumer price index improves as forecast NZD exchange rates could regain some ground in the near term.


Data Released

July 17th 08:45 NZD Consumer Price Index (YoY) (2Q) 1.6%
July 17th 09:30 AUD Reserve Bank of Australia Meeting Minutes 
July 17th 18:30 GBP Average Weekly Earnings (3M/YoY) (MAY) 2.5%
July 17th 22:30 CAD Manufacturing Sales (MoM) (JUN) 0.5%
July 17th 23:15 USD Industrial Production (MoM) (JUN) 0.5%

Post by TorFX

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