Pound Slumps as May’s Political Headache Intensifies

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Headlines

  • Australian Dollar Rallied in Spite of Weak Chinese Data – Strong commodity prices support AUD
  • Political Worries Exacerbated Sterling Downside – Brexit jitters continued to limit Pound appeal
  • NZD Rates Dipped Ahead of RBNZ Decision – Fresh dovishness from central bank could prompt further selling
  • Resilient Housing Market Boosted Canadian Dollar – ‘Loonie’ shrugs off neutral BOC commentary

Australian Dollar

Even though the latest raft of Chinese trade data fell short of forecasts the mood towards the Australian Dollar improved on Wednesday. While Chinese imports dipped further than expected in October the economy’s appetite for commodities remains high all the same, keeping base metal prices on a stronger footing. This offered support to the ‘Aussie’, especially as the appeal of the US Dollar started to sour somewhat overnight.

An uptick in Australian home loans in September could encourage the antipodean currency to make further gains this morning.

Sterling

Demand for the Pound continued to slide as the political headache of the minority Conservative government worsened. As Theresa May faced calls to drop both her International Development Secretary and Foreign Secretary over separate scandals her authority seemed to diminish further. This does not bode well for the prospect of any meaningful progress in the latest round of Brexit talks, increasing the risk of companies enacting their hard exit contingency plans sooner rather than later.

With the RICS house price balance expected to show some slowing on the month the appeal of Sterling is likely to remain limited today.

Euro

The single currency struggled to find support in the absence of any major Eurozone ecostats, especially as market risk appetite picked back up. Thanks to the rather mixed nature of recent domestic data investors have seen little reason to favour the Euro, given that the European Central Bank (ECB) is likely to maintain a dovish outlook for longer.

Even so, EUR exchange rates could find a solid rallying point this afternoon if the German trade surplus widens from 20 billion to 22.5 billion as anticipated.

US Dollar

As Democrats made significant gains in a number of US state elections this put pressure on the ‘Greenback’, suggesting that the Trump administration’s position is weakening. With the long-mooted tax reforms already looking set to face further delay in the Senate market confidence started to falter. Coupled with a stagnation in mortgage applications and falling safe-haven demand this weighed heavily on USD exchange rates.

However, if tonight’s jobless claims figures point towards a continued tightening of the US labour market the US Dollar could return to a stronger footing.

Canadian Dollar

While Bank of Canada (BOC) Governor Stephen Poloz maintained a generally neutral tone on monetary policy this did not weigh on the Canadian Dollar for long. Investors were instead encouraged by a solid rebound in Canadian building permits and housing starts, both of which seem to indicate a healthier domestic housing market. The persistent bullishness of oil prices also helped to support a stronger ‘Loonie’.

Another positive showing from September’s new housing price index may keep CAD exchange rates on a bullish run overnight.

New Zealand Dollar

October’s ANZ truckometer showed a sharp uptick, rebounding from -1.5% to 2.9%. This encouraged hopes that inflationary pressure within the New Zealand economy is still building, although this is unlikely to alter the stance of the Reserve Bank of New Zealand (RBNZ). As a result the ‘Kiwi’ struggled to maintain an uptrend as anticipation for this morning’s policy announcement built.

Although no change is expected from the RBNZ at this stage any signs of dovishness are likely to weigh heavily on the New Zealand Dollar.

Data Released

November 9th 07:00 NZD Reserve Bank of New Zealand Rate Decision 1.75%
November 9th 11:01 GBP RICS House Price Balance (OCT) 4.0%
November 9th 11:30 AUD Home Loans (MoM) (SEP) 2.0%
November 9th 18:00 EUR German Trade Balance (SEP) 22.5 billion
November 10th 00:30 CAD New Housing Price Index (YoY) (SEP)
November 10th 00:30 USD Initial Jobless Claims (NOV 04) 232,000

Post by TorFX

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