Geopolitical Worries Limit Australian Dollar Demand
The appeal of the Australian Dollar proved limited ahead of the weekend thanks to the latest escalation in US-Iran tensions. With the political situation in the Middle East remaining fraught the risk-sensitive currency struggled to find any particular support among investors. Although the odds of greater Federal Reserve dovishness mounted this was not enough to shore up AUD exchange rates on Friday.
Unless market risk appetite picks up over the course of the day the Australian Dollar is likely to remain on a weaker footing against its rivals.
Widened Budget Deficit Dampens UK Outlook
June’s UK public sector net borrowing data delivered an unpleasant surprise, showing that government borrowing surged to 7.2 billion last month. This widening of the budget deficit suggests that the UK is in a less positive fiscal position, increasing the risk posed by a potential no-deal Brexit. Even so, thanks to the softness GBP exchange rates saw throughout the week this disappointment was not enough to drive the Pound back towards its multi-month lows.
The outcome of the Conservative leadership contest could provoke fresh volatility for the Pound overnight, with political uncertainty still looking set to dominate the outlook for some time to come.
Declining Producer Prices Weigh Down Euro
Germany’s producer price index data failed to offer the Euro any support on Friday as the monthly figure saw a sharper contraction than forecast. As the headline annual producer price index eased from 1.9% to 1.2% this suggests that inflationary pressure within the Eurozone’s powerhouse economy is still fading. With the European Central Bank (ECB) looking increasingly likely to cut interest rates in the months ahead demand for the single currency naturally declined.
Without the support of any fresh data today the Euro could remain on a downtrend for the time being.
US Dollar Downside Limited by Strengthening Consumer Confidence
USD exchange rates found some support ahead of the weekend as July’s University of Michigan consumer sentiment index showed a modest improvement from 98.2 to 98.4. With consumer confidence close to a ten-year high markets saw fresh cause for optimism, in spite of other underwhelming signals from the US economy. However, as the Trump administration launched a fresh attack on the Federal Reserve the US Dollar soon faltered.
If the Chicago Fed national activity index eases as anticipated tonight USD exchange rates could face further selling pressure.
Retail Sales Contraction Dents Canadian Dollar
May’s retail sales data missed forecasts to deliver a surprise -0.1% contraction on the month. This weaker reading pushed the Canadian Dollar lower across the board, with confidence in the domestic outlook continuing to weaken. Declining oil prices equally put pressure on CAD exchange rates ahead of the weekend, as increasing tensions between the US and Iran cast a shadow over the oil market.
A sharp slowdown in the latest wholesale trade sales figure could prompt the Canadian Dollar to extend its downtrend further overnight.
New Zealand Dollar Benefits from Rivals’ Weakness
Even in the absence of any fresh domestic data NZD exchange rates were able to gain some ground during trade on Friday. Although concerns over the New Zealand economy remain the New Zealand Dollar capitalised on the relative weakness of its rivals in order to maintain a positive footing.
With New Zealand data still lacking from the calendar today NZD exchange rates look set to remain at the mercy of wider market movements.
Data Releases
July 22nd 22:30 CAD Wholesale Trade Sales (MoM) (MAY) 0.4%
July 22nd 22:30 USD Chicago Fed National Activity Index (JUN) -0.3