Escalating US-China Trade Tensions Limit Australian Dollar Support
Signs of a potential fresh escalation in the ongoing US-China trade dispute put the Australian Dollar under pressure yesterday. Reports that China could restrict its rare earth exports to the US spooked investors, suggesting that the two sides are unlikely to find a compromise in the near future. With market risk appetite still generally limited AUD exchange rates returned to the back foot.
As forecasts point towards a slowdown in private capital expenditure in the first quarter, indicating a lower level of business confidence, the Australian Dollar could face further downward pressure today.
Pound Remains Volatile Thanks to Political Uncertainty
The odds of a no-deal Brexit continued to rise overnight as bookmakers continue to rate a hard-line Brexiteer as the most likely successor to Theresa May. As the chances of a so-called soft Brexit compromise have diminished sharply in the wake of the European Parliament elections this has left investors with little incentive to favour the Pound over its rivals. News that Boris Johnson is set to appear in court over comments made during the EU referendum offered some limited support, though.
GBP exchange rates remain set for a prolonged bout of volatility thanks to the domestic political uncertainty hanging over the economic outlook.
Rising German Unemployment Weighs on Euro
A surprise increase in the German unemployment rate limited the appeal of the single currency last night, further undermining confidence in the outlook of the Eurozone’s powerhouse economy. Investors were also discouraged by the cautious conclusions of the European Central Bank’s (ECB) latest Financial Stability Review. As policymakers warned that the Eurozone faces risk from a slowdown in global growth the mood towards the Euro naturally soured.
As speculation over ECB President Mario Draghi’s successor continues this may weigh on EUR exchange rates.
Manufacturing Index Miss Fails to Dent US Dollar
Although the Richmond Fed manufacturing index fell short of forecast it still showed a modest improvement on the month in May, rising from 3 to 5. As the index remained in positive territory this limited the negative impact of the shortfall, encouraging the US Dollar to recover some ground. A general resurgence in market risk aversion over the potential of fresh Chinese retaliation against US tariffs also helped to shore up USD exchange rates as safe-haven demand picked up.
Tonight’s advance goods trade balance figure may put the US Dollar under pressure, however, if the deficit widens as forecast.
Steady BOC Encourages Canadian Dollar Demand
As anticipated, the Bank of Canada (BOC) left interest rates on hold at its May policy meeting overnight. This offered the Canadian Dollar a modest boost against its rivals, with policymakers adopting a more positive outlook on the domestic economy. Noting that recent data suggests that Canada’s economic slump is already easing the BOC looks set to remain on hold for the remainder of the year.
Sustained weakness within the oil market could still see the Canadian Dollar sliding lower over the course of the day, though.
New Zealand Dollar Slides After RBNZ Report
Reaction to the Reserve Bank of New Zealand’s (RBNZ) Financial Stability Report proved largely negative yesterday, leaving NZD exchange rates biased to the downside. While the report points towards the central bank leaving monetary policy on hold for longer this failed to bolster the appeal of the New Zealand Dollar. The latest bout of market risk aversion also weighed on the antipodean currency last night.
Another month of contraction in building permits could add to the bearish mood of the New Zealand Dollar this morning.
Data Releases
May 30th 08:45 NZD Building Permits (MoM) (APR)
May 30th 11:30 AUD Private Capital Expenditure (1Q) 0.5%
May 30th 22:30 USD Advance Goods Trade Balance (APR) -72.3 billion