Political Unease Drags on Australian and US Dollars

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Headlines

  • Possibility of Second Leadership Challenge Weighed on Australian Outlook – Political uncertainty limits demand for Australian Dollar
  • US Dollar Fell Out of Favour as Trump Lawyer Pleaded Guilty – Questions raised over future of Trump administration
  • Surge in Second Quarter Retail Sales Boosted New Zealand Dollar – NZD remains vulnerable to risk aversion
  • Pound Pushed Higher After Brexit Press Conference – Weaker CBI sales data could dent Sterling


Australian Dollar

Speculation over the likelihood of former Home Affairs Minister Peter Dutton launching a second leadership challenge against Prime Minister Malcolm Turnbull weighed heavily on AUD exchange rates. Investors remain uneasy thanks to the lingering sense of political uncertainty surrounding the Australian government, with Turnbull’s position looking far from secure in spite of seeing off Dutton’s first challenge. A weaker Westpac leading index did nothing to improve the outlook of the domestic economy, meanwhile.

If a second leadership vote does come about this could see the Australian Dollar slide once again.

Sterling

A lack of fresh domestic data did not prevent the Pound from making modest gains against the majority of its rivals on Wednesday. While markets were not overly impressed by the comments that emerged from the latest joint UK-EU press conference on Brexit this failed to keep GBP exchange rates on the back foot for long. Even though Brexit talks look set to run past the EU’s original October deadline the mood towards Sterling nevertheless improved.

Even so, as the CBI reported sales survey is expected to show a decline in demand on the month the Pound may well fall out of favour this evening.

Euro

The single currency was able to capitalise on a weaker US Dollar yesterday, even in the absence of any Eurozone data. Worries over political turmoil in the US gave markets incentive to buy into the Euro, especially as concerns surrounding the outlook of the Eurozone eased. With markets bracing for the release of the European Central Bank’s (ECB) latest meeting minutes the volatility of EUR exchange rates temporarily eased.

However, a more hawkish set of minutes could see the Euro pushing higher across the board if investors assess the central bank as being closer to raising interest rates.

US Dollar

Pressure on the US Dollar increased overnight thanks to mounting political concerns surrounding the Trump administration. As former Trump lawyer Michael Cohen pleaded guilty to charges of violating campaign finance laws this raised concerns that the White House could become further embroiled in scandal in the coming weeks. This naturally spooked investors, with the prospect of a larger political crisis weighing heavily on US Dollar sentiment.

An increase in the latest US jobless claims data may see USD exchange rates shed further ground tonight.

Canadian Dollar

As June’s Canadian retail sales data showed a contraction as forecast this limited the appeal of the Canadian Dollar. Weakening consumer confidence could encourage the Bank of Canada (BOC) to remain on hold for longer, to the detriment of CAD exchange rates. An unexpectedly large drawdown in US crude oil inventories offered some support to the commodity-correlated Canadian Dollar, though, limiting its losses.

If oil markets return to more bearish territory, however, this could easily drag CAD exchange rates down.

New Zealand Dollar

Surprisingly strong second quarter New Zealand retail sales gave NZD exchange rates a boost yesterday. As sales swelled 1.1% on the quarter, as opposed to forecasts of a 0.3% increase, this gave investors greater cause for confidence in the underlying health of the New Zealand economy. With the US Dollar falling out of favour this gave the ‘Kiwi’ an additional boost, although this bullishness ultimately proved short-lived.

Weakening market risk appetite may further erode the recent gains of NZD exchange rates.



Data Released

August 23rd 18:00 EUR Eurozone Manufacturing PMI (AUG P) 55.2
August 23rd 18:00 EUR Eurozone Services PMI (AUG P) 54.4
August 23rd 20:00 GBP CBI Reported Sales (AUG) 12
August 23rd 21:30 EUR European Central Bank Meeting Minutes 
August 23rd 22:30 USD Continuing Jobless Claims (AUG 11) 1,721,000

Post by TorFX

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