Weaker Australian Trade Balance Weighs Down Australian Dollar

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  • Deteriorating Australian Trade Position Weighs on AUD Exchange Rates – Investors disappointed as trade surplus narrows
  • Euro Gains Ground in Spite of German Factory Order Contraction – German construction sector shows unexpected growth
  • Canadian Dollar Exchange Rates Weaken as Oil Prices Plunge -3% – Hopes of OPEC production cut fail to limit weakness
  • US-China Trade Tensions Show Signs of Escalation – US Dollar sees limited support ahead of payrolls report

Narrowed Trade Surplus Adds to Australian Dollar Bearishness

A disappointingly sharp narrowing of the October trade surplus left AUD exchange rates on the back foot yesterday. This decline was not a positive sign for the Australian economy, especially as trade tensions between the US and China started to flare up once again. With weaker global growth and commodity prices weighing on the domestic economy the mood towards the Australian Dollar naturally soured. While retail sales saw a modest improvement on the month this failed to encourage AUD exchange rates.

Another month of contraction for the Australian construction sector may put further pressure on the Australian Dollar this morning.

Brexit Speculation Continues to Buoy Pound Sterling

Although investors increasingly expect to see Theresa May’s Brexit proposal defeated in next week’s key vote the appeal of the Pound remained heightened. As the odds of a no-deal Brexit have fallen this has helped to shore up GBP exchange rates, even in the absence of supportive domestic data. Even so, the Pound’s bullishness is still fragile in nature thanks to the persistent sense of political uncertainty that hangs over the UK outlook.

Today’s Bank of England (BoE)/TNS inflation attitudes survey may prompt additional volatility for GBP exchange rates, especially if signs point towards weaker inflationary pressure.

Euro Shrugs Off German Factory Order Contraction

German factory orders showed a smaller contraction than forecast in October, limiting the data’s negative impact on EUR exchange rates. Although the Eurozone’s powerhouse economy continued to see a slowdown in orders the Euro was able to hold its ground against some of the majors overnight. As the German construction PMI returned to a state of expansion in November this offered encouragement to the single currency, even though the overall economic outlook remains muted.

A strong showing from October’s German industrial production data could offer the Euro a more significant rallying point this evening.

US Dollar Benefits From US-China Trade Worries

As tensions between the US and China showed fresh signs of escalation the US Dollar was supported by a resurgence in market risk aversion last night. Investors were encouraged to pile back into the safe-haven USD after the arrest of high profile Chinese businesswoman Meng Wanzhou spooked markets. While November’s ISM non-manufacturing composite index showed a modest improvement on the month this failed to give USD exchange rates any particular boost.

Any signs that the US labour market is struggling to tighten further in November’s non-farm payrolls report may put further pressure on the US Dollar.

Oil Price Slump Prompts Canadian Dollar Losses

As the price of Brent crude plunged more than -3% this dragged the Canadian Dollar down across the board. Even though markets fully anticipated an imminent oil production cut from OPEC this was not enough to outweigh the general sense of market risk aversion overnight. November’s Ivey PMI also disappointed investors, with business confidence showing signs of easing in the face of weaker domestic data.

Even so, a stronger showing from tonight’s Canadian unemployment data may give the Canadian Dollar some support after a week of weakness.

Risk Aversion Drives New Zealand Dollar Down

In the face of a fresh bout of market risk aversion the New Zealand Dollar softened. The risk-sensitive currency came under pressure due to the prospect of another escalation in the trade spat between the US and China. As markets unwound the gains made on the back of the weekend’s G20 agreement this left NZD exchange rates under pressure.

Unless investors return to a more risk-positive mentality today demand for the New Zealand Dollar is unlikely to pick up.

Data Released

December 7th 08:30 AUD Construction PMI (NOV) 
December 7th 18:00 EUR German Industrial Production (YoY) (OCT) 2.1%
December 7th 20:30 GBP Bank of England/TNS Inflation Attitudes Survey 
December 8th 00:30 CAD Unemployment Rate (NOV) 5.8%
December 8th 00:30 USD Change in Non-Farm Payrolls (NOV) 198,000

Post by TorFX

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