US Dollar Softens as US Home Sales Slump

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  • Weaker Chinese GDP Fails to Weigh Down Australian Dollar – Signs of US weakness boost market risk appetite
  • Brexit Worries Outweigh Narrowed UK Budget Deficit – Pound trends lower as no-deal Brexit fears persist
  • Sharp Contraction in Home Sales Dents US Dollar – USD bullishness undermined by weakening housing market
  • Canadian Dollar Slides After Unexpectedly Weak Inflation Data – Odds of Bank of Canada interest hike diminish

AUD Exchange Rates Defy Easing Chinese Growth
A modest slowdown in the third quarter Chinese gross domestic product failed to weigh down the Australian Dollar on Friday. While growth in the world’s second largest economy eased from 6.7% to 6.5% on the year this was not enough to diminish market risk appetite. As the US Dollar weakened in response to a sharp decline in US existing home sales this helped to boost AUD exchange rates, even though the weaker showing is unlikely to alter the odds of a Federal Reserve interest rate hike.
Commentary from Reserve Bank of Australia (RBA) policymakers could provoke fresh volatility for the Australian Dollar in the near term as investors continue to weigh up the odds of a 2019 interest rate hike.
Pound Fails to Capitalise on Narrowed UK Budget Deficit
Although September’s UK public sector net borrowing figure bettered forecasts this was not enough to shore up the Pound ahead of the weekend. Even as the budget deficit narrowed from -4.7 billion to -3.2 billion this failed to encourage a greater sense of optimism in the domestic outlook. Brexit-based uncertainty continued to weigh down GBP exchange rates as the odds of a no-deal exit picked up, with investors seeing little chance of a breakthrough in the near future.
Unless UK and EU officials show signs of moving towards an agreement the Pound is likely to remain under pressure today.
Wider Current Account Surplus Boosts Euro
As the Eurozone current account surplus widened from 19 billion to 24 billion confidence in the health of the currency union improved. Although international trade continued to show signs of weakness this failed to keep the Euro on the back foot during Friday’s trading session. Worries over the Italian budget dispute temporarily eased, meanwhile, giving the single currency a break from recent political pressure.
Even so, EUR exchange rates may struggle to hold onto a stronger footing today if demand for the US Dollar recovers.
US Dollar Slips as Home Sales Crumble
While investors had anticipated a contraction in US existing home sales in September the ultimate extent of the decline proved discouraging. As sales slumped by a dramatic -3.4% on the month this undermined confidence in the outlook of the domestic housing market. This weakness does not offer the most positive signal for the wider US economy, prompting the US Dollar to slip lower ahead of the weekend.
Further signs of weakening in September’s Chicago Fed national activity index could see USD exchange rates extending their losses tonight.
Sharp Decline in Inflation Drives Canadian Dollar Down
The recent bout of Canadian Dollar confidence came to an end on Friday after the latest Canadian retail sales and consumer price index data fell short of forecast. Investors were disappointed to find that the annual inflation rate had dropped from 2.8% to 2.2% in September, falling close to the Bank of Canada’s (BOC) 2% target. This unexpectedly sharp decline undermined bets that the central bank could raise interest rates again in the coming months, to the detriment of CAD exchange rates.
With August’s wholesale sales data expected to ease on the month this could weaken the Canadian Dollar further.
New Zealand Dollar Pushes Higher on Market Confidence
As confidence in the strength of the US economy diminished this gave the New Zealand Dollar a fresh boost. NZD exchange rates enjoyed a strong week of trading thanks to Tuesday’s better-than-expected inflation data, although these gains could prove difficult to maintain in the longer term. Limited market worries over slowing Chinese growth also benefitted the ‘Kiwi’.
After its bullish run, however, the New Zealand Dollar looks vulnerable to a potential bout of profit taking today.

Post by TorFX

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