Worries Over Turkey Weigh Down Australian Dollar

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Headlines

  • Investors Continued to Favour Safe-Haven Assets Amid Turkish Financial Crisis – AUD exchange rates look for rallying point on business confidence index
  • GBP Exchange Rates Recovered Ground Ahead of UK Wage Data – Steady earnings figures to support Pound demand
  • Risks to European Banking Sector Kept Euro Under Pressure – Threat of contagion continues to weigh on single currency
  • New Zealand Dollar Strengthened on Improved Services PMI – Confidence in outlook of NZ economy boosted


Australian Dollar

Risk aversion kept the Australian Dollar under pressure at the start of the week as investors continued to pile into safe-haven assets. The escalating financial crisis in Turkey limited the appeal of the risk-sensitive ‘Aussie’, with markets wary of the prospect of contagion spreading into the European banking sector. In the absence of any fresh Australian data this left the Australian Dollar struggling to find any traction against the majors on Monday.

As no change is forecast for July’s NAB business confidence index this is unlikely to offer AUD exchange rates any particular support today.

Sterling

The relative weakness of its rivals benefitted Pound Sterling yesterday, with worries over Brexit temporarily eclipsed by the crisis in Turkey. As July’s UK consumer price index is forecast to show an uptick in inflationary pressure this week this has helped to limit the downside potential of GBP exchange rates. Signs that UK inflation is continuing to build would encourage greater confidence in the outlook of the Pound, even though the odds of further Bank of England (BoE) action remain slim.

Any improvement in tonight’s wage growth data could encourage the Pound to extend its gains further.

Euro

EUR exchange rates remained on the back foot during Monday’s European session thanks to the situation in Turkey. After the Central Bank of the Republic of Turkey (CBRT) failed to raise interest rates, opting to boost liquidity instead, this prompted the Turkish Lira to weaken further. As investors still see reason to fear the threat of the financial crisis damaging the wider European banking sector the mood towards the single currency proved bearish.

A rallying point could be in store for the Euro, however, if the second quarter German gross domestic product demonstrates an acceleration in economic growth.

US Dollar

Safe-haven demand continued to drive demand for the US Dollar overnight as investors rushed to brace against further escalation in the Turkish financial crisis. With markets in a generally risk averse mentality USD exchange rates benefitted, although assets such as the Swiss Franc and Japanese Yen still found greater demand. While the Trump administration continued to pursue a more belligerent approach with regards to trade this was not enough to limit the appeal of the US Dollar at this stage.

With the NFIB small business optimism index forecast to show a decline on the month, though, the US Dollar may struggle to hold onto its gains.

Canadian Dollar

Declining global demand for oil limited the appeal of the Canadian Dollar, raising fears that prices are likely to see a further weakening in the months ahead. Even so, CAD exchange rates found some support overnight as market worries over Turkey showed some signs of easing. While risk appetite remains fragile due to the threat of a continued decline in the Lira this failed to keep the Canadian Dollar under pressure.

However, any fresh decline in investor sentiment could still see CAD exchange rates slip in the near term.

New Zealand Dollar

July’s New Zealand services PMI showed a solid improvement on the month, strengthening from 52.7 to 55.1 as the sector continued to expand. This helped to shore up the New Zealand Dollar yesterday even in the face of the wider atmosphere of market risk aversion. NZD exchange rates also found support on the back of a modest uptick in July’s food price index, which suggests that inflationary pressures are building.

The New Zealand Dollar still looks vulnerable to weakness today unless the general mood of investors improves.


Data Released

August 14th 11:30 AUD NAB Business Confidence (JUL) 6
August 14th 16:00 EUR German Gross Domestic Product (YoY) (2Q P) 2.1%
August 14th 18:30 GBP Average Weekly Earnings (3M/YoY) (JUN) 2.5%
August 14th 20:00 USD NFIB Small Business Optimism (JUL) 106.8

Post by TorFX

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