Escalating US-China Tensions Drag Down Australian Dollar
Market risk appetite deteriorated sharply ahead of the weekend as the Trump administration threatened to impose a 10% tariff on all remaining Chinese imports. This left the Australian Dollar on the back foot, with the US-China trade dispute looking increasingly likely to rumble on. Although the second quarter Australian retail sales data showed a solid rebound on the quarter this was not enough to keep AUD exchange rates from sliding.
Unless this morning’s TD Securities inflation gauge points towards a stronger level of domestic price pressures the Australian Dollar may struggle to recover its lost ground.
Construction Sector Contraction Weighs on Pound
Confidence in the outlook of the UK economy continued to diminish on Friday at July’s construction PMI remained firmly sat in contraction territory. While the index showed a modest improvement on the month the underlying details of the report point towards a continued trend of weakness. News that the Conservative Party lost a Welsh by-election, reducing its working majority to just one, failed to offer GBP exchange rates a boost, meanwhile.
Another weak reading from the UK services PMI may see the Pound extend its downtrend today, given that the sector accounts for more than three quarters of the UK gross domestic product.
Eurozone Retail Sales Growth Benefits Euro
The Euro found some support during Friday’s European session as the latest Eurozone retail sales figures showed a strong improvement on the year. With consumer spending continuing to pick up the impact of the previous day’s underwhelming manufacturing PMIs diminished. Even so, with June’s Eurozone producer price index indicating a weaker level of inflationary pressure on the month the upside potential of the single currency proved limited.
If the Eurozone Sentix investor confidence index eases this would leave EUR exchange rates vulnerable to a fresh bout of selling pressure, however.
Solid Payrolls Report Boosts US Dollar Demand
As July’s headline change in non-farm payrolls figure matched market forecasts this offered the US Dollar a fresh boost against its rivals. While the unemployment rate held steady at 3.7% this still points towards a tight labour market, giving the Federal Reserve greater cause for confidence. An uptick in average hourly earnings also helped to fuel demand for the US Dollar, with the risk of future Fed policy easing diminishing further.
As long as the ISM non-manufacturing composite index remains firmly within expansion territory the mood of USD exchange rates is likely to remain bullish.
Canadian Dollar Falters on Narrowed Trade Surplus
A narrowing of the Canadian trade surplus limited demand for the Canadian Dollar, even though export volumes picked up on the month. Although the trade balance avoided falling into a state of deficit as some forecasts suggested this was not enough to bolster confidence in the economic outlook. The general deterioration in market risk appetite also weighed on CAD exchange rates.
Without the support of any fresh domestic data today the Canadian Dollar looks set to remain out of favour with investors.
Consumer Confidence Drop Dents New Zealand Dollar
The ANZ consumer confidence index dropped sharply in July, falling -5.1% on the month as confidence in the New Zealand economy continued to fade. This prompted NZD exchange rates to trend lower ahead of the weekend, with markets still betting that the Reserve Bank of New Zealand (RBNZ) will cut interest rates in the near future. As market risk sentiment weakened this put additional pressure on the New Zealand Dollar.
An uptick in July’s ANZ commodity price index could help NZD exchange rates to return to a positive footing this morning, though.
Data Releases
August 5th 11:00 AUD TD Securities Inflation (YoY) (JUL)
August 5th 11:00 NZD ANZ Commodity Price (JUL)
August 5th 18:30 EUR Eurozone Sentix Investor Confidence Index (AUG)
August 5th 18:30 GBP Services PMI (JUL) 50.2
August 5th 00:00 USD ISM Non-Manufacturing Composite (JUL) 55.0