Hopes of US-China Trade Progress Shore up Australian Dollar

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  • Optimism Over US-China Trade Talks Boosts Australian Dollar – Dovish RBA minutes set to drag on AUD
  • Pound Weighed Down by Weakening Household Confidence – Strong UK wage growth to offer boost 
  • Strong Services PMI Fails to Shore up New Zealand Dollar – Confidence in NZ economic outlook remains limited
  • Canadian Dollar Benefits from Rising Oil Prices – Risk appetite shores up CAD exchange rates

Australian Dollar Benefits from Risk Appetite

Hopes of a potential breakthrough in US-China trade relations helped to support the Australian Dollar at the start of the week. Positive commentary from the US and Chinese leaderships gave investors an incentive to favour risk-sensitive assets yesterday. Even so, with confidence in the outlook of the Australian economy still limited AUD exchange rates struggled to make any significant gains over the course of the day.

If the Reserve Bank of Australia’s (RBA) February meeting minutes echo the dovishness of recent policymaker comments this could weigh heavily on the Australian Dollar.

Deteriorating Household Sentiment Weighs on Pound

Brexit-based anxiety continued to limit the appeal of the Pound yesterday as IHS Markit’s household finance index fell to an eleven-month low. As households showed an increasing sense of caution over their financial outlook this suggests that consumer spending could slow in the near future. As a group of seven MPs broke away from Labour this fuelled fresh concerns over the current divided nature of Parliament, with Theresa May’s ability to achieve a consensus still looking limited.

Even so, if UK wage growth accelerates as forecast this evening the mood towards the Pound is likely to see a solid improvement.

Euro Muted by Threat of US Tariffs on Eurozone Cars

Fears of potential US tariffs on European car exports cast a shadow over the Euro, given the already weakened nature of Eurozone trade. However, signs of an easing in tensions between the US and China still fuelled hopes that the global economy could recover its lost momentum in the months ahead. Without the support of any fresh domestic data, though, EUR exchange rates struggled to find any particular traction.

Unless tonight’s German ZEW economic sentiment index shows a significant uptick on the month the single currency may come under additional pressure.

Bank Holiday Limits Support for US Dollar

With US markets closed for the Presidents Day the US Dollar fell out of favour at the start of the week. The general improvement in market risk appetite weighed heavily on USD exchange rates, with demand for the safe-haven currency diminishing. While the odds of a US-China trade deal improved, however, investors remain wary of the Trump administration’s often belligerent approach to trade.

Any improvement in the NABH housing market index may give the US Dollar a fresh boost tonight, though.

Rising Oil Prices Shore up Canadian Dollar

Increased market confidence saw oil prices improve last night, with Brent crude trending above US$66 per barrel. The prospect of improved US-China trade relations gave prices a boost, given the way that the dispute has dragged on the growth of the Chinese economy. Hopes that the US will not impose additional tariffs on Chinese products encouraged investors to favour higher-yielding assets such as the Canadian Dollar, meanwhile.

However, CAD exchange rates remain vulnerable to any deterioration in the oil market.

Strong Services PMI Fails to Boost New Zealand Dollar

Although January’s New Zealand services PMI showed a solid uptick on the month this was not enough to prevent NZD exchange rates trending lower. The mood towards the New Zealand Dollar soured in spite of this latest sign of resilience within the domestic economy. As last week’s bullishness faded this left NZD on a weaker footing against its rivals.

An uptick in prices at the latest Global Dairy Trade auction could still offer NZD exchange rates a rallying point overnight.

Data Releases

February 19th 11:30    AUD    Reserve Bank of Australia Meeting Minutes (FEB)    
February 19th 20:30    GBP    Average Weekly Earnings (3M/YoY) (DEC)    3.5%
February 19th 21:00    EUR    German ZEW Economic Sentiment Survey (FEB)    -13.5
February 20th 02:00    USD    NAHB Housing Market Index (FEB)    59

Post by TorFX

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