Fresh US-China Trade Tariffs Drag Australian Dollar Down
As China retaliated to the latest round of US tariffs, imposing fresh tariffs on over four thousand products, market risk appetite diminished significantly. This left the risk-sensitive Australian Dollar on the back foot at the start of the week, weakening thanks to its status as a common proxy for the health of the Chinese economy. With global trade tensions looking set to escalate further in the days ahead AUD exchange rates naturally slumped.
However, if the NAB business confidence index picks up as forecast this morning the appeal of the Australian Dollar could improve.
Brexit Worries Continue to Weigh on Pound
With Theresa May continuing to push back against the prospect of a second public vote on Brexit the odds of a political breakthrough remain limited. As senior Labour MPs continue to support the idea of taking the deal back to the people the two sides appear no closer to agreement. This limited the upside potential of the Pound yesterday, with political uncertainty looking set to hang over the economic outlook for some time to come.
Any signs of a slowdown in UK wage growth could see GBP exchange rates shedding ground this evening.
Euro Trends Higher amid Market Risk Aversion
As market risk appetite diminished this offered some support to the Euro, even though confidence in the outlook of the Eurozone economy remains muted. With risk-sensitive assets falling out of favour investors had greater incentive to buy into the single currency. Even so, this latest escalation in US-China trade tensions could also negatively impact the Eurozone as the global trade slowdown continues.
An improvement in May’s Eurozone ZEW economic sentiment survey could help EUR exchange rates to gain further ground, with markets looking for evidence of a stronger second quarter.
US Dollar Benefits from Escalating Trade Tensions
The latest escalation in the US-China trade spat failed to drive the US Dollar lower across the board last night. A fresh bout of safe-haven demand helped to bolster USD exchange rates overnight, in spite of growing concerns over the health of the world’s largest economy. Although the latest round of tariffs look set to weigh on US consumers the negative impact of the news was limited.
If tonight’s NFIB small business optimism index picks up on the month this may encourage the US Dollar to push higher across the board.
Oil Price Uptick Fails to Support Canadian Dollar
While oil prices showed a moderate improvement during trade on Monday this was not enough to offer the Canadian Dollar a rallying point. Even though the value of Brent crude picked up in response to attacks on two Saudi oil tankers CAD exchange rates remained on the back foot. With investors piling out of risk-sensitive assets overnight the Canadian Dollar was carried lower as trade anxieties picked up.
As long as oil prices maintain a positive trend, though, this could help CAD exchange rates to find some traction.
Food Price Contraction Dents New Zealand Dollar
April’s New Zealand food price index proved underwhelming, showing a -0.1% contraction on the month. This suggests that inflationary pressure within the New Zealand economy remains limited, raising the risk of further Reserve Bank of New Zealand (RBNZ) dovishness in the coming months. Coupled with the wider decline in market risk appetite this left the New Zealand Dollar under pressure.
In the absence of any fresh domestic data today NZD exchange rates look set to remain biased to the downside.
Data Releases
May 13th 11:30 AUD NAB Business Confidence Index (APR) 1
May 13th 18:30 GBP Average Weekly Earnings (3M/YoY) (MAR) 3.4%
May 13th 19:00 EUR Eurozone ZEW Economic Sentiment Survey (MAY) 1.0
May 13th 20:00 USD NFIB Small Business Optimism (APR) 102.0