Worsening US-China Trade Relations Increase Pressure on Australian Dollar

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  • Australian Dollar Loses Ground Amid Escalating Trade Tensions – Signs of RBA optimism may boost AUD exchange rates
  • Pound Picks Up as Conservative Leadership Challenge Worries Ease – MPs have yet to submit requisite number of letters of no confidence
  • Softened Housing Index Limits US Dollar Gains – Trade war worries continue to support safe-haven demand
  • Stronger Services PMI Fails to Boost New Zealand Dollar – Market risk aversion outweighs positive NZ data

Escalating US-China Trade Tensions Weigh on Australian Dollar

As trade tensions between the US and China only appeared to deepen over the weekend this left the Australian Dollar on a weaker footing. Investors were discouraged by the Asia-Pacific Economic Cooperation (APEC) summit’s failure to yield any thawing in the US-China trade spat, with leaders ultimately failing to agree on an end-of-summit statement. This unprecedented show of disunity weighed heavily on market sentiment, dragging AUD exchange rates lower.

An upbeat tone from this morning’s Reserve Bank of Australia (RBA) meeting minutes could encourage the Australian Dollar to recover some ground, however.

Pound Benefits from Temporary Easing in Brexit Worries

With Conservative MPs still lacking the necessary 48 letters of no confidence to launch a leadership challenge against Theresa May the mood towards the Pound improved overnight. Although a sense of uncertainty still hangs over the UK outlook this was not enough to prevent GBP exchange rates recovering some of last week’s losses. While November’s Rightmove house price index proved less encouraging, showing a contraction of -1.7% on the month, this failed to weigh down the Pound.

If November’s CBI industrial trends orders index shows an improvement on the month this may give GBP exchange rates an additional boost.

Rising Construction Output Offers Limited Boost to Euro

A solid 4.6% uptick in Eurozone construction output in September offered support to EUR exchange rates, even as the monthly measure proved less positive in nature. The robust headline figure suggests that the Eurozone economy is in a healthier state, boosting hopes of a rebound in growth before the end of the year. However, as September’s current account surplus narrowed from 23.9 billion to 17.0 billion this helped to limit any Euro bullishness.

Any easing of October’s German producer price index may prompt the single currency to trend lower against its rivals tonight.

Signs of Weaker Housing Market Limit US Dollar Upside

The US Dollar came under pressure last night as the latest NAHB housing market index unexpectedly dropped from 68 to 60. This suggests that the US housing market is in a worse state of health than previously thought, undermining confidence in the wider domestic outlook. In spite of the general sense of market risk appetite picking up in response to souring US-China trade relations this left USD exchange rates on the back foot.

Investors are likely to pay close attention to tonight’s housing starts and building permits data, looking for further evidence of a weaker housing market.

Oil Worries Continue to Limit Canadian Dollar Demand

With oil prices under pressure once again the Canadian Dollar struggled to find much in the way of support yesterday. As global trade tensions look set to worsen in the weeks ahead the appeal of the risk-sensitive Canadian Dollar naturally diminished. The threat of a fresh global oversupply glut continues to limit the upside potential of CAD exchange rates, in spite of expectations for another OPEC-led production cut.

Without the support of domestic data the Canadian Dollar is unlikely to find any particular rallying point in the near term.

New Zealand Dollar Softens as Risk Aversion Outweighs Improved Service Sector Growth

Even though October’s New Zealand services PMI strengthened from 54.2 to 55.4, indicating strong sector growth, this failed to boost the New Zealand Dollar. While the domestic economy continues to demonstrate signs of improvement NZD exchange rates came under pressure as a result of wider market trends. With the US-China trade spat looking set to rumble on for some time to come investors were reluctant to favour the risk-sensitive ‘Kiwi’.

Unless risk appetite picks up today the mood towards the New Zealand Dollar is likely to remain relatively bearish.

Data Released

November 20th 11:30    AUD    Reserve Bank of Australia Meeting Minutes    
November 20th 18:00    EUR    German Producer Price Index (YoY) (OCT)    3.3%
November 20th 22:00    GBP    CBI Industrial Trends Orders (NOV)    -5
November 21st 00:30    USD    Housing Starts (MoM) (OCT)    2.4%
November 21st 00:30    USD    Building Permits (MoM) (OCT)    -0.8%

Post by TorFX

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