- Australian Construction PMI Slumped Sharply – AUD exchange rates benefit from disappointing US jobs report
- Barnier’s Brexit Warning Weighed on GBP Demand – Investors spooked by continued lack of progress
- Robust German Production Supported Euro Gains – Confidence in outlook of Eurozone economy improves
- Canadian Dollar Dented by Mixed Employment Data – Weaker wage growth drags CAD lower
A sharp decline in June’s Australian construction PMI weighed on AUD exchange rates ahead of the weekend, with the index slumping from 54.0 to 50.6. This represents a significant easing in sector growth, moving uncomfortably close to the baseline of 50 which separates expansion from contraction. However, demand for the Australian Dollar picked up during Friday’s European session thanks to the disappointing nature of the latest US jobs data.
As global trade tensions remain elevated, however, the mood towards the Australian Dollar could easily sour today.
Brexit nerves continued to weigh on the Pound on Friday, with markets nervously watching Theresa May’s crunch cabinet meeting. Comments from chief EU negotiator Michel Barnier prompted further weakness for GBP exchange rates, with investors discouraged by his warning that there is still a long way to go to finalise a deal. With businesses already losing patience with the persistent uncertainty surrounding the UK’s future trade arrangements there was little reason to favour Sterling.
Developments regarding Brexit are likely to remain the key influence on the Pound in the near term.
Another strong showing came from May’s German industrial production data, which bettered forecasts with an uptick of 3.1% on the year. This encouraged greater confidence in the underlying health of the Eurozone’s powerhouse economy, offering fresh support to the Euro. Even though global trade tensions remained elevated this failed to dent EUR exchange rates, which instead benefitted from a less bullish US labour market report.
If the German trade surplus widened in May this could extend the gains of EUR exchange rates further this afternoon.
While the latest change in non-farm payrolls figure bettered expectations this failed to support USD exchange rates. Investors were more concerned by the surprise uptick in the unemployment rate, which rose from 3.8% to 4.0%, and a dip in wage growth. Even though the US labour market remains relatively strong this is not translating into significant wage pressures, something which is likely to disappoint Federal Reserve policymakers.
Market risk aversion may shore up the US Dollar, however, if trade war concerns begin to weigh on the minds of investors once again.
Confidence in the Canadian Dollar deteriorated sharply in the wake of June’s Canadian labour market report. While the participation rate rose further than forecast, prompting the unemployment rate to also rise, attention primarily fell on hourly earnings data. As wage growth eased markedly on the year this prompted investors to pile out of the Canadian Dollar. The more limited increase in full time employment also weighed on CAD exchange rates.
Rising trade tensions between Canada and the US could drag the Canadian Dollar lower today.
New Zealand Dollar
Despite the US and China imposing tariffs on one another, kicking off a formal trade war, the New Zealand Dollar remained in favour on Friday. With markets largely content to shrug off the impact of the tariffs, at least for the time being, NZD exchange rates gained fresh ground. A weaker US Dollar also helped to boost the ‘Kiwi’.
A lack of domestic data is likely to limit the scope for continued New Zealand Dollar gains, though.
July 9th 16:00 EUR German Trade Balance (MAY)
July 9th 18:30 EUR Eurozone Sentix Investor Confidence (JUL)
Post by TorFX