Australian Dollar
Risk aversion picked up at the start of the week thanks to the mounting sense of global tension following the UN’s decision to impose fresh sanctions on North Korea. This encouraged investors to pile back into safe-haven assets at the expense of the risk-sensitive Australian Dollar. Even though July’s Australian construction PMI proved decidedly bullish, with the index accelerating from 56 to 60.5 on the month, this was not enough to particularly buoy the ‘Aussie’. Even so, the Australian Dollar was still able to gain ground against its commodity-correlated cousins on the back of this positive showing.
If the NAB business confidence index points towards an uptick in sentiment on the month this could offer further support to the ‘Aussie’ today.
Sterling
Confidence in the outlook of the UK economy deteriorated further in response to fresh signs of slowing in the domestic housing market. As the Nationwide house price index slowed from 2.6% to 2.1% this suggested that sentiment amongst UK consumers has continued to soften in response to ongoing Brexit-based uncertainty. Commentary from Downing Street also added to the bearishness of the Pound, with conflicting reports emerging on the subject of a 40 billion Euro exit bill and the government’s willingness to pay such a sum. With any real degree of clarity still proving elusive GBP exchange rates remained under pressure.
The appeal of Sterling could weaken further this morning if the BRC like-for-like sales report also points towards softening consumer confidence.
Euro
An unexpected contraction in German industrial production on the month in June failed to dent demand for the Euro on Monday. Even though this could be taken as a fresh sign that the Eurozone’s powerhouse economy is losing momentum investors were not particularly concerned by the volatile monthly figure. A smaller-than-forecast dip in the Eurozone Senxit investor confidence also helped to shore up the single currency overnight, particularly as a general sense of risk aversion dominated the outlook of markets.
Any widening of the German trade surplus is likely to extend the gains of the Euro, despite its somewhat negative implications for neighbouring Eurozone states.
US Dollar
Safe-haven demand buoyed the ‘Greenback’ even in the absence of any supportive US data. However, after the marked gains seen ahead of the weekend USD exchange rates are still vulnerable to downside pressure. Bets over the prospect of the Federal Reserve raising interest rates before the end of the year are likely to continue driving US Dollar volatility, particularly as various Fed speakers are due to offer commentary this week.
As forecasts point towards a slight decline in the NFIB small business optimism index this is unlikely to encourage the US Dollar to trend higher tonight.
Canadian Dollar
The commodity-correlated ‘Loonie’ remained under pressure as markets braced for the impact of the latest meeting of the Organisation of the Petroleum Exporting Countries (OPEC). There are concerns that producers will not remain committed to caps on output, potentially paving the way towards a resurgence in the global oversupply glut. As this could see Brent crude fall back below the psychologically important US$50 per barrel mark the outlook for the Canadian Dollar remains rather bearish.
With Canadian housing starts thought to have dipped in July CAD exchange rates may struggle to find any particular traction.
New Zealand Dollar
As the Reserve Bank of New Zealand’s (RBNZ) 2-year inflation expectation survey dipped from 1.92% to 1.77% for the third quarter there was little reason to favour the ‘Kiwi’ yesterday. This dovish report added to expectations that the central bank will leave interest rates unchanged at its latest policy meeting, maintaining a more cautious view on monetary policy. Lacking any support from market risk appetite this saw the New Zealand Dollar trending sharply lower across the board.
As investors adopt positions ahead of the RBNZ meeting the mood towards the ‘Kiwi’ is unlikely to improve in the short term.
Data Released
August 8th 09:01 GBP BRC Sales Like-For-Like (YoY) (JUL) 0.9%
August 8th 11:30 AUD NAB Business Confidence (JUL) 11
August 8th 16:00 EUR German Trade Balance (JUN) 23 billion
August 8th 20:00 USD NFIB Small Business Optimism (JUL) 103.5
August 8th 22:15 CAD Housing Starts (JUL) 205,000