Hopes of G20 Breakthrough Support Australian Dollar
As anticipation mounted ahead of the G20 summit the Australian Dollar found support, even as global trade tensions remained generally elevated. Investors were optimistic that the US and China could make some progress towards an agreement on trade, in spite of the Trump administration’s continued belligerence on trade. The disappointing nature of last night’s US goods data also helped to boost AUD exchange rates, with the Federal Reserve still on track to cut interest rates.
Market optimism could falter today, however, if the potential for a breakthrough on US trade continues to fade.
Weaker Mortgage Approvals Undermine Pound Appeal
GBP exchange rates remained on the back foot yesterday as May’s BBA mortgage approvals data showed a surprise deterioration on the month. This weaker showing suggests that households are adopting an increasingly cautious outlook in the face of ongoing political uncertainty and Brexit-based jitters. As markets continued to weigh up the likely outcome of the Conservative leadership contest this put additional downside pressure on the Pound, driven by worries of a potential no-deal Brexit.
Political developments are likely to provoke further volatility for GBP exchange rates tonight.
Euro Under Pressure as German Confidence Declines
The German GfK consumer confidence index fell short of forecast in July, sliding from 10.1 to 9.8 as sentiment within the Eurozone’s powerhouse economy continued to weaken. The decline put additional pressure on the Euro, as stronger domestic growth has recently helped to shore up the German economy. This latest sign of weakness added to bets that the European Central Bank (ECB) will act to cut interest rates sooner rather than later, leaving the single currency on the back foot.
Any softening of the German consumer price index could weigh heavily on the Euro today, with the odds of an ECB rate cut continuing to rise.
Widened Goods Trade Deficit Weighs on US Dollar
Confidence in the health of the US economy continued to deteriorate overnight as both May’s durable goods orders and advance goods trade balance figures disappointed expectations. Rather than narrowing as forecast, the advance goods trade deficit widened from -72.1 billion to -74.5 billion on the month. This suggests that the country’s ongoing trade disputes are weighing on the domestic economy, prompting the US Dollar to shed fresh ground last night.
As long as the finalised US annualised gross domestic product data sees no downgrade this should limit the weakness of USD exchange rates tonight, however.
Canadian Dollar Bounces as Oil Stockpiles Fall
A sharp drawdown in US crude oil stockpiles offered the Canadian Dollar a boost as oil prices returned to an uptrend. With 7.5 million fewer barrels in US stockpiles the price of Brent crude picked up to $65 per barrel, in spite of previous market anxiety over the prospect of a reduced global supply. CAD exchange rates capitalised on this latest bout of bullishness, even as worries over the wider trade outlook remain.
With the support of fresh domestic data, however, the Canadian Dollar may struggle to hold onto its gains for long.
Lack of RBNZ Action Boosts New Zealand Dollar
As the Reserve Bank of New Zealand (RBNZ) left interest rates on hold at its June meeting NZD exchange rates pushed higher across the board. Although the central bank maintained its dovish policy outlook, signalling the likelihood of a future interest rate cut, this failed to dent the New Zealand Dollar. With the impact of additional policy easing already largely priced into the antipodean currency the potential for further losses proved limited.
Any signs of improvement in the latest ANZ business confidence index could encourage NZD exchange rates to extend their recovery further.
Data Releases
June 27th 11:00 NZD ANZ Business Confidence (JUN) -22.7
June 27th 22:00 EUR German Consumer Price Index (YoY) (JUN) 1.4%
June 27th 22:30 USD Annualised Gross Domestic Product (QoQ) (1Q F) 3.1%