Economic Slowdown Drags on Australian Dollar
Demand for the Australian Dollar diminished sharply yesterday in the wake of the fourth quarter’s underwhelming gross domestic product data. Investors were disappointed to find that the Australian economy had lost significant momentum in the final three months of 2018, posting growth of just 0.2% on the quarter. With the impact of the Chinese slowdown and global trade tensions weighing heavily on the Australian economy AUD exchange rates were left to trend lower across the board.
A narrowing of January’s trade surplus could put further pressure on the Australian Dollar today, as this would increase the case for a Reserve Bank of Australia (RBA) interest rate cut.
Brexit Anxiety Keeps Pound on Back Foot
Speculation over Brexit offered the Pound no real source of support overnight, with progress towards a final deal still distinctly lacking. With time fast running out for officials to conclude negotiations the mood of GBP exchange rates naturally soured in the absence of any breakthrough on the Irish border issue. Comments from Bank of England (BoE) Deputy Governor Jon Cunliffe were not enough to shore up the Pound, meanwhile.
If the Halifax house price index shows an improvement, however, this could give GBP exchange rates a leg up this evening.
Euro Benefits as German Construction Sector Surges
The German construction PMI showed a solid acceleration in February, strengthening from 50.7 to 54.7 on the month. With the sector enjoying heightened growth confidence in the underlying health of the German economy as a whole improved. Although construction only accounts for a fraction of the German gross domestic product this still offered investors incentive to buy into the single currency.
However, the Euro may struggle to hold onto its positive footing tonight if the European Central Bank (ECB) shifts towards a more dovish policy outlook.
Widening Trade Deficit Limits US Dollar Demand
Confidence in the health of the US economy deteriorated overnight as December’s trade balance showed a more pronounced widening of the deficit than forecast. As the trade deficit swelled to 59.8 billion, driven by the continued decline in US manufacturing exports, this suggests that the Trump administration’s protectionist policies have failed to achieve the desired effect. With the US economy looking set to lose further momentum in the months ahead this disappointing result weighed heavily on USD exchange rates.
Ahead of the release of February’s non-farm payrolls report the mood towards the US Dollar is unlikely to see any major improvement.
Increased BOC Dovishness Drives Canadian Dollar Down
CAD exchange rates came under fresh pressure overnight as the Bank of Canada (BOC) adopted a more dovish tone at its latest policy meeting. As the BOC’s statement dropped its previous reference to the need for interest rates to rise over time this reduced the odds of a 2019 rate hike sharply. With the Bank looking set to leave monetary policy on hold in the months ahead as confidence in the domestic economy eases the mood towards the Canadian Dollar turned bearish.
If January’s building permits data declines as forecast this could drive CAD exchange rates to shed further ground tonight.
Slowing Global Growth Weighs on New Zealand Dollar
As global market risk appetite diminished this left the New Zealand Dollar on a weaker footing. The OECD’s decision to downgrade its growth forecasts for 2019 and 2020 limited the appeal of the risk-sensitive NZD yesterday with global growth looking set to slow further. In the absence of any fresh New Zealand data this left NZD exchange rates biased to the downside.
Until investors see greater cause for confidence in the global outlook the strength of the New Zealand Dollar looks set to remain muted.
March 7th 11:30 AUD Trade Balance (JAN) 2.9 billion
March 7th 19:30 GBP Halifax House Price Index (3M/YoY) (FEB) 1%
March 7th 23:45 EUR European Central Bank Rate Decision 0%
March 8th 00:30 CAD Building Permits (MoM) (JAN) -1.5%