Underwhelming Trade Balance Drags Australian Dollar Down

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Headlines

  • Australian Trade Surplus Narrower Than Forecast – Australian Dollar weighed down by sliding copper prices
  • Euro Struggled to Capitalise on Stronger Service Sector Performance – Trade war fears limit appeal of single currency
  • GBP Buoyed by Unexpectedly Improved Services PMI – Signs point towards stronger second quarter growth
  • New Zealand Commodity Price Index Slumped – Confidence in domestic outlook continues to deteriorate



Australian Dollar

Markets were disappointed by the latest Australian trade data, with May’s surplus proving narrower than forecast as the April figure saw a downward revision. All in all, this did not paint the most encouraging picture of the domestic outlook. With China and the US poised to impose fresh tariffs on each other the appeal of risk-sensitive assets naturally declined once again. As copper prices fell to a new nine-month low this heaped additional pressure on the Australian Dollar overnight.

While markets jitters over the prospect of a global trade war persist AUD exchange rates are unlikely to find any particular support.

Sterling

A solid trio of UK PMIs was rounded out by a better-than-expected services PMI, which strengthened from 54 to 55.1. This all suggested that the UK economy is in a stronger state than previously thought, encouraging hopes that the second quarter gross domestic product saw a rebound. With forecasts now pointing towards a growth rate of 0.4% investors raised the odds of the Bank of England (BoE) voting to increase interest rates in August, boosting demand for the Pound.

Comments from Bank of England (BoE) Governor Mark Carney could prompt GBP exchange rates to make further gains, providing he takes a more hawkish tone.

Euro

In a positive development for the Euro the finalised raft of Eurozone services PMIs bettered forecast, showing a solid level of growth on the month. This helped to ease concerns over the outlook of the domestic economy, even though it is still unlikely to recover much of its lost momentum in the near future. However, EUR exchange rates remained under pressure on Wednesday thanks to the persistent threat of a global trade war and a stronger US Dollar.

Even so, as May’s German factory orders are expected to show a strong rebound this may offer the Euro a rallying point today.

US Dollar

In spite of US markets being closed for Independence Day the downside potential of USD exchange rates remained limited yesterday. With a US-China trade war looking increasingly likely demand for the safe-haven US Dollar persisted even in the absence of domestic support. A smaller contraction in the latest MBA mortgage applications figure also added to general confidence in the outlook of the US economy, regardless of tariff fears.

Another strong showing from tonight’s ISM non-manufacturing composite index may fuel a fresh uptrend for the US Dollar.

Canadian Dollar

Support for the Canadian Dollar was muted last night, with the currency still under pressure thanks to the wider mood of market risk aversion. With Brent crude prices trending narrowly there appeared little reason to favour the Canadian Dollar over its rivals, in spite of the positive nature of recent domestic data.

Ahead of Friday’s Canadian labour market data the mood of CAD exchange rates is likely to remain bearish, especially if global trade tensions mount further.

New Zealand Dollar

The ANZ commodity price index slumped sharply on the month, contracting -1.0% in June to wipe out much of May’s improvement. In the wake of the disappointing dairy auction this added to worries over the outlook of the New Zealand economy, particularly in the face of mounting international trade tensions. Even so, the New Zealand Dollar was still able to find some gains against its weaker commodity-correlated cousins.

In the absence of any fresh data NZD exchange rates remain vulnerable to downside pressure ahead of the weekend.


Data Released

July 5th 16:00 EUR German Factory Orders (YoY) (MAY) 1.7%
July 5th 18:10 EUR Eurozone Retail PMI (JUN) 
July 5th 20:00 GBP Bank of England Governor Carney Speech 
July 6th 00:00 USD Non-Manufacturing Composite (JUN) 58.2

Post by TorFX

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