Pound Strengthens on Hopes of Future BoE Interest Rate Hikes

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  • Widening Trade Surplus Shores up AUD Exchange Rates – Australian economy shakes off global trade tensions
  • BoE Policy Announcement Encourages Pound Gains – Policymaker commentary overshadows weak manufacturing PMI
  • Canadian Dollar Slumps as Global Oil Supply Rises – Latest oil price decline weighs heavily on CAD
  • US Dollar Trends Lower Ahead of Payrolls Report – Signs of continued labour market tightening may encourage rally

Widened Trade Surplus Boosts Australian Dollar

Demand for the Australian Dollar picked up sharply yesterday in the wake of September’s trade data. Investors were encouraged to find that the trade surplus had unexpectedly widened to 3.017 billion, bettering forecasts. This suggests that the Australian economy is shaking off the impact of global trade tensions, prompting the Australian Dollar to trend higher against many of the majors. A solid improvement in the latest commodity index added to the bullishness of AUD exchange rates, meanwhile.

However, as forecasts point towards a slowdown in third quarter retail sales this could see the Australian Dollar return to a weaker footing today.

Pound Reacts Positively to BoE Comments

Even though October’s UK manufacturing PMI fell significantly short of forecast, easing from 53.6 to 51.1, this failed to particularly weigh down GBP exchange rates. Reports that the UK and EU have reached a ‘tentative agreement’ on the future of financial services encouraged investors to pile back into the Pound. Reaction to the Bank of England’s (BoE) November policy announcement also proved positive, with markets taking heart from the indication that policymakers continue to expect an interest rate hike in 2019.

If October’s construction PMI also disappoints, though, the mood towards the Pound could sour this evening.

Italian Worries Continue to Weigh on Euro Exchange Rates

Confidence in the single currency remained relatively muted as investors instead opted to favour higher-yielding rivals. While the US Dollar also came under pressure this failed to give EUR exchange rates any particular boost overnight. Concerns over the political outlook of the Eurozone continue to limit the appeal of the Euro, with the issue of the controversial Italian budget still hanging over markets. Ahead of the latest stress tests of Italian banks worries over the possibility of a fresh Eurozone crisis persist.

The Italian manufacturing PMI for October could put further pressure on the Euro today, with investors expecting to see the index fall into contraction territory.

US Dollar Fails to Benefit From Manufacturing Data

As October’s ISM manufacturing index showed a larger-than-expected decline on the month this left the US Dollar on the back foot last night. Although the sector remains in a solid state of growth this weaker showing still dented USD exchange rates. With global trade tensions and geopolitical risk on the rise there are fears that the US manufacturing sector could face a further loss of momentum in the months ahead. Anticipation ahead of tonight’s non-farm payrolls report also helped to erode the US Dollar’s earlier gains.

As long as the headline change in non-farm payrolls figure shows a solid improvement on the month this should give USD exchange rates a rallying point.

Oil Slump Drags Down Canadian Dollar

In spite of the general increase in market risk appetite the Canadian Dollar continued to trend lower on Thursday. October’s manufacturing PMI failed to impress, easing from 54.8 to 53.9 on the month. While the sector is still showing a decent pace of expansion this slowdown still sent a bearish signal, undermining confidence in the domestic outlook. As oil prices plunged lower on the back of rising global supply there was little in the way of support for CAD exchange rates.

Underwhelming labour market data could add to the losses of the Canadian Dollar tonight.

Rising House Prices Shore up New Zealand Dollar

A solid uptick in house prices and job advertisements helped to give the New Zealand Dollar a fresh boost yesterday. Confidence in the outlook of the domestic economy continued to pick up in response to the positive data, especially in the face of wider market risk appetite. This saw NZD exchange rates making marked gains into the night, with reports of plans for fresh Chinese stimulus adding to the optimistic mood.

However, a weaker ANZ consumer confidence index could leave the New Zealand Dollar under pressure this morning.

Data Released

November 2nd 08:00 NZD ANZ Consumer Confidence (MoM) (OCT) 
November 2nd 11:30 AUD Retail Sales Ex Inflation (QoQ) (3Q) 0.4%
November 2nd 19:45 EUR Italy Manufacturing PMI (OCT) 49.7
November 2nd 22:30 GBP Construction PMI (OCT) 52
November 2nd 23:30 CAD Unemployment Rate (OCT) 5.9%
November 2nd 23:30 USD Change in Non-Farm Payrolls (OCT) 193,000

Post by TorFX

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