Rising Unemployment Weighs Heavily on Australian Dollar
Investors were disappointed as the Australian unemployment rate overshot forecasts to rise to 5.2% in April, leaving AUD exchange rates on the back foot. As the Australian labour market remains a key source of disquiet for the Reserve Bank of Australia (RBA) this naturally spooked the Australian Dollar. The mood towards the risk-sensitive currency deteriorated further as news broke of the US decision to blacklist Chinese telecoms giant Huawei, another escalation in the trade dispute.
As long as a sense of risk aversion persists today the Australian Dollar could struggle to regain any of its lost ground.
Political Worries Limit Pound Appeal
Increasing political pressure on Theresa May limited the appeal of the Pound overnight, with Conservative MPs continuing to push for the Prime Minister to set a departure date. The continued lack of progress towards a Brexit compromise also weighed on GBP exchange rates with the issue of a second public vote still splitting opinion. As a sense of uncertainty looks set to hang over the UK economy for the foreseeable future investors saw little incentive to favour the Pound.
Without signs of progress towards a final Brexit deal GBP exchange rates are likely to remain lacking in positive momentum.
Widened Eurozone Trade Surplus Supports Euro
The Eurozone trade surplus widened further in March, suggesting that the currency union largely shrugged off the impact of global trade tensions at the end of the first quarter. As the surplus widened from 19.1 billion to 22.5 billion this offered the Euro a boost. However, the positive impact of the data was ultimately limited by the latest bout of market trade anxiety as relations between the US and China continued to deteriorate.
A slowdown in Eurozone construction output could put additional pressure on EUR exchange rates this evening.
US Dollar Strengthens on Improved Business Outlook
May’s Philadelphia Fed business outlook index offered fresh encouragement to USD exchange rates, pointing towards a more resilient economy. As the index picked up from 8.5 to 16.6 this helped to push the US Dollar higher across the board, even as the latest raft of US construction data proved underwhelming. With markets in a risk averse mood once again the US Dollar also benefitted from a resurgence in safe-haven demand.
Any uptick in tonight’s University of Michigan consumer sentiment index is likely to give USD exchange rates an additional boost.
Manufacturing Sales Rebound Boosts Canadian Dollar
Canadian manufacturing sales saw a strong improvement on the month in March, rebounding 2.1% after February’s -0.2% contraction. This bolstered confidence in the underlying health of the domestic economy, giving the Canadian Dollar a leg up against its rivals. A stronger oil market also lent support to CAD exchange rates overnight, limiting the negative impact of the latest bout of trade tensions.
Even so, the Canadian Dollar may struggle to hold onto its positive footing for long in the absence of further supportive domestic data.
New Zealand Dollar Soft Ahead of Manufacturing PMI
Demand for the New Zealand Dollar remained generally limited yesterday as markets processed the latest developments in the ongoing US-China trade spat. With commodity-correlated currencies generally falling out of favour NZD exchange rates struggled to maintain any particular degree of traction. However, the New Zealand Dollar was still able to benefit from the relative weakness of some of its rivals.
Unless this morning’s manufacturing PMI demonstrates a solid month of expansion for the sector the appeal of the New Zealand Dollar looks set to weaken further.
Data Releases
May 17th 08:30 NZD Manufacturing PMI (APR)
May 17th 19:00 EUR Eurozone Construction Output (YoY) (MAR) 1.8%
May 18th 00:00 USD University of Michigan Consumer Sentiment Index (MAY) 97.5