Widening US Goods Trade Deficit Drags Down US Dollar

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Headlines

  • Solid Consumer Confidence Boosted AUD Exchange Rates – Australian Dollar remains vulnerable to political developments
  • No Deal Brexit Fears Weighed Heavily on Sterling – Rally possible on stronger UK housing data
  • Sharp Widening of Advance Goods Trade Deficit Put Pressure on US Dollar – Push towards protectionism looks likely to continue
  • Canadian Dollar Benefitted as US-Mexico Trade Deal Agreed – Markets hopeful that Canadian deal will follow


Australian Dollar

After the political turmoil of the last week the Australian Dollar has returned to a stronger footing, continuing to recover ground on Tuesday. A solid uptick in the ANZ Roy Morgan weekly consumer confidence index offered additional support to AUD exchange rates, suggesting that the recent political developments have not dented domestic sentiment. With global market trade tensions easing the appeal of the commodity-correlated Australian Dollar naturally improved.

Even so, AUD exchange rates remain vulnerable to any fresh investor jitters or signs of disunity within the governing Liberal party.

Sterling

Brexit weighed on the Pound yesterday, with markets spooked by Theresa May’s latest comments on the subject. As May noted that leaving the EU without any deal in place is ‘not the end of the world’ this reignited investor jitters. The odds of a no deal Brexit also appeared to increase as Downing Street refused to commit to giving MPs a full impact assessment ahead of their final vote on the matter. Altogether, this left GBP exchange rates biased to the downside.

If the Nationwide housing price index for August points towards a stronger domestic market this could offer some support to Sterling.

Euro

Mounting tensions over Italian spending plans limited the appeal of the Euro on Tuesday, with the government looking set for a showdown with EU officials. If the budget conflict continues to escalate this could keep the single currency under pressure, raising the prospect of a fresh Eurozone crisis. Even so, the relative weakness of the US Dollar helped to shore up EUR exchange rates in spite of European political worries.

A steady reading from September’s German GfK consumer confidence index should limit the downside potential of the single currency in the near term.

US Dollar

An unexpectedly sharp widening of the advance goods trade deficit in July gave the US Dollar little cause for confidence overnight. As the deficit widened from -67.9 billion to -72.7 billion on the month the Trump administration looks set to continue its more belligerent approach to international trade. The prospect of an increased protectionist push left USD exchange rates on a downtrend as tensions with China continue to hang over the economic outlook.

However, confirmation that the US economy accelerated sharply in the second quarter is likely to bolster demand for the US Dollar.

Canadian Dollar

The breakthrough in US-Mexico trade talks offered encouragement to the Canadian Dollar, even though Canada is not yet party to the deal. This progress nevertheless boosted market hopes that the US and Canada could soon resolve their differences regarding trade, diminishing the odds of any fresh tariffs coming into play. As Brent crude prices continued to trend comfortably this helped to support CAD exchange rates overnight.

A narrowing of the second quarter current account deficit may give the Canadian Dollar an additional boost tonight.

New Zealand Dollar

Although domestic data was lacking at the start of the week the New Zealand Dollar still found support on the back of a general improvement in market risk appetite. With the US Dollar on a softer footing the appeal of the commodity-correlated NZD strengthened, even though doubts remain over the underlying health of the New Zealand economy.

The New Zealand Dollar may struggle to gain much ground against its rivals, however, until investors find cause for confidence in the domestic outlook.


Data Released

August 29th 16:00 EUR German GfK Consumer Confidence (SEP) 10.6
August 29th 16:00  GBP Nationwide Housing Price Index (YoY) (AUG) 2.6%
August 29th 22:30 CAD Current Account Balance (2Q) -15.2 billion
August 29th 22:30 USD Gross Domestic Product Annualised (QoQ) (2Q) 4.0%

Post by TorFX

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