Rising Trade Tensions Between US and EU Drag Australian Dollar Lower

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Headlines

  • Escalating Global Trade Tensions Dented Australian Dollar Demand – Dovish RBA to leave interest rates on hold
  • Steady UK Manufacturing PMI Offered Limited GBP Support – Concerns remain over UK economic outlook
  • Threat of US Tariffs Weighed Heavily on Euro Exchange Rates – Eurozone manufacturing growth slowed to eighteen-month low
  • USD Exchange Rates Pushed Higher on Solid ISM Manufacturing Index – Fears over negative impact of trade tariffs limited


Australian Dollar

Demand for the Australian Dollar generally deteriorated at the start of the week, with market risk appetite weakening once again. Investors were not impressed by the latest Chinese manufacturing PMI, which unexpectedly softened in June. The commodity-correlated ‘Aussie’ was also weighed down by a resurgence in global trade war fears, with the US administration threatening fresh tariffs on EU car imports. All in all, this left AUD exchange rates generally lacking in support.

With the Reserve Bank of Australia (RBA) expected to leave interest rates on hold this afternoon the Australian Dollar may struggle to find a rallying point in the near term.

Sterling

Although June’s UK manufacturing PMI showed an unexpected improvement on the month this was not enough to particularly boost GBP exchange rates yesterday. The underlying details of the report were not overly encouraging, with new order growth continuing to flag. This suggests that the UK manufacturing sector remains under a fair degree of pressure, especially in the absence of any greater clarity over the shape of the UK’s future relationship with the EU.

Even so, a solid showing from the corresponding construction PMI could help to shore up the appeal of Sterling today.

Euro

The threat of the US imposing tariffs on EU-made cars left the Euro on a downtrend on Monday as the disagreement between the US and EU continues to escalate. This naturally left EUR exchange rates vulnerable to losses, especially as the latest raft of Eurozone manufacturing PMIs proved disappointing in nature. As factory growth across the currency union hit an eighteen-month low the mood towards the Euro soured, with the economy looking set to lose further momentum.

Any dip in Eurozone retail sales could see EUR exchange rates shedding further ground this evening.

US Dollar

June’s ISM manufacturing index offered a fresh signal of economic strength, with the index jumping from 58.7 to 60.2 on the month. While firms expressed unease over the prospect of a trade war, driving up the prices of commodities, this was not enough to dent USD exchange rates overnight. Investors piled back into the US Dollar in order to brace for the possibility of the US and EU imposing tariffs on each other.

However, if tonight’s factory orders figure points towards weakening demand the US Dollar may struggle to hold onto its uptrend.

Canadian Dollar

The threat of a potential trade war kept oil prices under pressure on Monday, with Brent crude falling back below the US$78 per barrel mark. Even so, the Canadian Dollar was still able to push higher against a number of the majors. Following the landslide victory for Mexico’s new president confidence in the prospect of successful NAFTA renegotiations picked up, supporting CAD exchange rates.

If the latest Canadian manufacturing PMI impresses the Canadian Dollar is likely to extend its positive run.

New Zealand Dollar

Risk aversion left the New Zealand Dollar on a weaker footing at the start of the week, softening in response to global trade concerns. In the absence of any fresh domestic data there was little in the way of support for the risk-sensitive ‘Kiwi’, putting NZD exchange rates under pressure.

The latest Global Dairy Trade auction could encourage the New Zealand Dollar to strengthen, however, if dairy prices show signs of improvement.


Data Released

July 3rd 14:30 AUD Reserve Bank of Australia Rate Decision 1.50%
July 3rd 18:30 GBP Construction PMI (JUN) 52.5
July 3rd 19:00 EUR Eurozone Retail Sales (YoY) (MAY) 1.6%
July 3rd 23:30 CAD Manufacturing PMI (JUN) 
July 4th 00:00 USD Factory Orders (MAY) 0.0%

Post by TorFX

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