Worries Over Post-Brexit UK-US Trade Dent Pound

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Headlines

  • Weakening Copper Prices Limited Australian Dollar Appeal – Trade war worries continue to weigh on AUD exchange rates
  • Trump Comments on Brexit Dragged Sterling Lower – Investors spooked by US push for harder Brexit
  • Dip in Manufacturing PMI Weighed Down NZD Exchange Rates – Confidence in New Zealand outlook remains muted
  • Euro Remained Under Pressure on Mixed German Price Data – Widened Eurozone trade surplus could offer boost today


Australian Dollar

AUD exchange rates struggled to hold onto a positive footing heading into the weekend in the absence of any fresh domestic data. Although trade war fears showed no signs of escalating on Friday, with markets still waiting for the Chinese retaliation to the latest US tariffs, this failed to benefit the Australian Dollar. With copper prices still sliding in response to the threat of a further souring of global trade relations investors saw little incentive to favour the ‘Aussie’ at this juncture.

Ahead of the release of the Reserve Bank of Australia’s (RBA) latest meeting minutes the mood towards the Australian Dollar is likely to remain muted.

Sterling

Brexit jitters continued to dominate the outlook of GBP exchange rates as investors processed the latest reaction to Theresa May’s white paper. Suggestions that the proposals could rule out a possible UK-US trade deal prompted the Pound to slump sharply across the board. Confidence in Sterling was further dented by more dovish commentary from Bank of England (BoE) deputy governor Jon Cunliffe, who called for caution with regards to raising interest rates.

Sterling may struggle to make any particular recovery today, especially if a sense of political uncertainty persists.

Euro

Demand for the single currency deteriorated further on Friday, in spite of an uptick in German wholesale prices on the year. Investors were more focused on the disappointing dip in the monthly wholesale price index, which suggests that inflationary pressure within the Eurozone’s powerhouse economy is still rather muted. As softer Eurozone inflation is likely to encourage the more dovish voices within the European Central Bank (ECB) this put fresh pressure on EUR exchange rates.

If the Eurozone trade balance widens as forecast this is likely to shore up the Euro today, in spite of persistent worries over the impact of US protectionism.
 
US Dollar

An unexpected contraction in the monthly import price index was not enough to keep the US Dollar on a downtrend ahead of the weekend. With China still holding off its announcement of any retaliatory measures in response to the threat of another $200 billion’s worth of US tariffs the mood of USD exchange rates picked up. Although concerns remain over the likely escalation of global trade tensions over the coming weeks the increased sense of market risk aversion offered support to the US Dollar.

However, if tonight’s advance retail sales figure points towards an easing in consumer spending the US Dollar may falter once again.

Canadian Dollar

The appeal of the Canadian Dollar remained generally muted thanks to the lingering threat of increased US protectionism. Even so, the weakness of CAD exchange rates was limited thanks to a modest improvement in oil prices. As the oil market held relatively steady ahead of the weekend, in spite of trade tensions, the Canadian Dollar still found some degree of support.

In the absence of any fresh domestic data today the Canadian Dollar is likely to remain biased to the downside, unless market sentiment generally improves.

New Zealand Dollar

June’s New Zealand manufacturing PMI did not offer the New Zealand Dollar any cause for confidence, weakening from 54.4 to 52.8 on the month. This softer showing underlined market worries over the health of the domestic economy, suggesting that growth is still easing. With market risk appetite still fragile this gave NZD exchange rates an extra push lower.

If today’s services PMI proves similarly disappointing the New Zealand Dollar looks set to fall further out of favour.


Data Released

July 16th 08:30 NZD Services PMI (JUN) 
July 16th 19:00 EUR Eurozone Trade Balance 
July 16th 22:30 USD Advance Retail Sales (MoM) (JUN) 0.6%

Post by TorFX

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