US Dollar Gains Ease After Weaker ADP Employment Data

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  • Australian Trade Surplus Narrowing More Limited Than Forecast – Solid construction data to boost ‘Aussie’
  • US Dollar Uptrend Falters as Jobs Data Disappoints – Jitters mount in anticipation of non-farm payrolls report
  • German Factory Orders Continue to Contract – Euro softens as confidence in Eurozone’s powerhouse economy declines
  • Canadian Dollar Vulnerable Ahead of Employment Figures – NAFTA worries weigh on CAD

Australian Dollar Shakes Off Sharp Decline in Exports

A smaller-than-expected narrowing of the Australian trade surplus helped to limit the vulnerability of AUD exchange rates on Thursday. Even though exports saw a sharp -1% decline on the month in July this failed to dent the Australian Dollar as confidence in the economic outlook remains high. While global trade tensions show no signs of easing in the near future the mood towards the commodity-correlated Australian Dollar still improved yesterday.

Another steady showing from this morning’s construction PMI may offer AUD exchange rates an additional boost.

Sterling Gains Ease as Brexit Optimism Falters

As German officials were quick to deny reports that Germany is prepared to compromise in order to reach a Brexit deal this rapidly reversed the Pound’s recent bullish run. However, hopes of an imminent Brexit breakthrough continued to fuel demand for Sterling overnight as investors continue to bet on a softening of tensions between the two sides. Even so, GBP exchange rates could struggle to hold onto this support for all that long as uncertainty persists.

A decline in the third quarter UK consumer inflation expectations estimate may dent the Pound, giving the Bank of England (BoE) greater incentive to sit tight.

Surprise Decline in German Factory Orders Weighs on Euro

Confidence in the outlook for the Eurozone economy continued to deteriorate yesterday as July’s German factory orders figures showed an unexpected contraction. Defying forecasts of a solid rebound, factory orders declined -0.9% on the month as international demand for German products remained muted. As orders in the manufacturing sector have now seen a contraction in six of the last seven months investors saw little incentive to favour the single currency, with German growth looking unlikely to pick up pace in the near future.

With July’s German trade surplus expected to narrow in response to declining exports and global trade tensions support for the Euro appears unlikely.

Weaker Jobs Growth Limits US Dollar Bullishness

US data impressed once again overnight as the ISM non-manufacturing composite index accelerated sharply on the month. With the index leaping from 55.7 to 58.5 in August the signs look positive for another bullish quarter of economic growth. However, the US Dollar failed to capitalise on this encouraging data as August’s ADP employment change figure proved weaker than forecast. This suggests that the US labour market is struggling to tighten further.

If the non-farm payrolls report shows similar weakness this could drive USD exchange rates lower across the board heading into the weekend.

CAD Softens on Underwhelming Housing Data

Another monthly contraction in Canadian building permits left CAD under pressure, highlighting the continued weakness of the domestic housing market. Worries over the likelihood of NAFTA renegotiations between the US and Canada dragging on for longer also discouraged investors from buying into the Canadian Dollar. As long as the threat of additional tariffs hangs over the economy the mood of CAD exchange rates is likely to remain generally muted.

As forecasts point towards an uptick in August’s unemployment rate further losses appear likely for the Canadian Dollar tonight.

New Zealand Dollar Remains Vulnerable to Trade Tensions

Although global trade worries limited demand for the New Zealand Dollar on Thursday this weakness began to ease overnight. As the US Dollar was knocked off its bullish trend the appeal of the higher-yielding ‘Kiwi’ naturally improved. Even so, with the trade dispute between the US and China looking set to intensify the latest gains of NZD exchange rates remain fragile.

As anticipation mounts for the latest US employment data the New Zealand Dollar is expected to see fresh jitters.

Data Released

September 7th 08:30 AUD Construction PMI (AUG) 52.2
September 7th 16:00 EUR German Trade Balance (JUL) 19.5 billion
September 7th 18:30 GBP Consumer Inflation Expectations (3Q) 2.7%
September 7th 22:30 CAD Unemployment Rate (AUG) 5.9%
September 7th 22:30 USD Unemployment Rate (AUG) 3.8%

Post by TorFX

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