Softer Business Confidence Dampens Australian Dollar Demand

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  • Australian Dollar Declines on Weakening Business Confidence – Disappointing consumer confidence index could extend losses
  • UK Wage Growth Acceleration Unable to Sustain Pound Gains – Worries over Brexit persist
  • US Dollar Softened by Prospect of Chinese Sanctions – Further escalation in trade spat to drive increased USD volatility
  • Weaker Global Oil Production Shores up Canadian Dollar – CAD shrugs off softer domestic data

Business Confidence Decline Weighs on AUD

AUD exchange rates extended their downtrend further on Tuesday as the NAB business confidence index declined from 7 to 4 in August. This indicates that sentiment within the Australian economy is still deteriorating, giving investors less incentive to favour the Australian Dollar over its rivals. Even though the wider sense of market risk appetite picked up somewhat in response to reports of another US-North Korea summit this failed to spur any ‘Aussie’ gains.

A similarly disappointing reading from September’s Westpac consumer confidence index could see AUD exchange rates lose further ground this morning.

Pound Sterling Fails to Capitalise on Wage Data

Demand for the Pound picked up significantly in response to hopes that a Brexit agreement could be in place by November. However, while the latest UK average weekly earnings data pointed towards stronger wage growth the mood towards Sterling soon started to sour. With some Conservative backbenchers pushing for the UK to leave the EU without any deal worries over the future of the UK economy soon reignited. Even confirmation that Bank of England (BoE) Governor Mark Carney will remain in post until January 2020 failed to strengthen GBP exchange rates.

As markets brace for Thursday’s BoE interest rate decision the appeal of the Pound is unlikely to pick up.

Strengthening German Confidence Offers Support to Euro

A better-than-expected uptick in the German ZEW economic sentiment survey offered support to the single currency overnight. As confidence within the Eurozone’s powerhouse economy picked up, in spite of easing exports and global trade tensions, this limited the downside potential of EUR exchange rates. With the US-China trade spat continuing to escalate the appeal of the Euro proved largely muted, especially as anticipation started to mount for the European Central Bank’s (ECB) September policy meeting.

Another weaker month of Eurozone industrial production may undermine demand for the Euro today.

USD Uptrend Falters on Threat of Chinese Sanctions

While the NFIB small business optimism index showed a solid improvement on the month USD exchange rates struggled to significantly capitalise on the figure. Even though signs point towards greater resilience within the US economy investors were spooked by the news that China is seeking permission from the World Trade Organisation to impose sanctions on the US. This dented confidence in the domestic outlook, limiting the strength of the US Dollar even as market safe-haven demand increased.

A softening of August’s producer price index may drag on USD exchange rates ahead of tomorrow’s headline US inflation rate.

Bullish Oil Market Keeps Canadian Dollar on Stronger Footing

The Canadian Dollar shrugged off a surprise decline in housing starts for August, even though the health of the domestic housing market remains fragile. Surging oil prices helped to carry CAD exchange rates higher overnight, with investors encouraged by the latest signs of easing global supply. With US sanctions on Iran limiting exports and North Sea operations falling the mood of the oil market improved dramatically.

If Canadian capacity utilisation increases in line with forecasts this could see the Canadian Dollar pushing higher still tonight.

NZD Exchange Rates Struggle to Find Support

In the absence of fresh domestic data the New Zealand Dollar struggled to find any momentum on Tuesday, particularly with risk aversion picking back up. As investors continue to wait for the imposition of fresh US tariffs on Chinese goods the appeal of the risk-sensitive ‘Kiwi’ remained rather limited.

Unless market sentiment improves today NZD exchange rates look set to remain under pressure.

Data Released

September 12th 10:30 AUD Westpac Consumer Confidence (SEP) 
September 12th 19:00 EUR Eurozone Industrial Production (YoY) (JUL) 1.0%
September 12th 22:30 CAD Capacity Utilisation (2Q) 86.8%
September 12th 22:30 USD Producer Price Index (YoY) (AUG) 3.2%

Post by TorFX

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