Rising Business Confidence Benefits Australian Dollar
A solid uptick in the NAB business confidence index encouraged the Australian Dollar, with the measure doubling on the month. While confidence still remains limited by historical standards, in part thanks to ongoing US-China trade tensions, this was enough to boost AUD exchange rates. Investors also took encouragement from comments made by Reserve Bank of Australia (RBA) assistant governor Christopher Kent. As Kent suggested that the RBA’s rate cuts are working as intended the risk of further potential action diminished.
If Westpac’s consumer confidence index also shows an improvement this morning AUD exchange rates could extend their positive trend.
Pound Struggles on Mixed Labour Market Signals
The UK labour market failed to show any fresh signs of tightening in the three months to June, limiting the appeal of the Pound. As the unemployment rate picked up from 3.8% to 3.9% this encouraged doubts over the underlying strength of the UK economy. However, while GBP exchange rates came under renewed pressure on the back of the data its negative impact was muted by the accompanying average weekly earnings figures. With wage growth picking up in the second quarter the downside potential of the Pound temporarily eased.
Even so, an easing in the UK consumer price index could fuel fresh GBP exchange rate declines as the risk of Bank of England (BoE) dovishness increases.
Sharp German Confidence Decline Dents Euro
Demand for the Euro continued to decline yesterday after August’s German ZEW economic sentiment index fell significantly short of forecast. Although investors had anticipated a decline in confidence on the month the sharp drop from -24.5 to -44.1 caught markets off guard. This marked decline in economic sentiment suggests that the Eurozone’s powerhouse economy remains on course for a potential recession, with growth unlikely to recover in the near future.
Confirmation that the German economy contracted in the second quarter as anticipated would leave EUR exchange rates exposed to additional selling pressure.
US Dollar Finds Support on Business Optimism Uptick
July’s NFIB small business optimism index showed a solid improvement, offering a fresh boost to the US Dollar. Coupled with a sharper increase in the latest consumer price index data this fuelled a greater sense of optimism in the health of the US economy. Even though the CPI is not the Federal Reserve’s preferred measure of inflation this improvement still suggests that price pressures are picking up. However, USD exchange rates encountered some resistance overnight thanks to an improvement in US-China relations.
Another month of contraction for the import and export price indexes, however, may push the US Dollar lower against its rivals.
Signs of US-China Progress Fuel Canadian Dollar Improvement
The Canadian Dollar benefitted from news of progress between the US and China, with the two sides making steps to resume trade discussions. As the Trump administration postponed the imposition of a 10% tariff on a number of additional Chinese products this prompted a general improvement in market sentiment. This helped to push oil prices higher overnight, with Brent crude surging 3.4% on the day, and lifted CAD exchange rates.
Even so, if US crude oil inventories show an increase on the week this could swiftly return the Canadian Dollar to the back foot.
Food Price Leap Boosts New Zealand Dollar
In a positive sign for the New Zealand economy July’s food price index rebounded 1.1% on the month, indicating a stronger level of domestic inflationary pressure. This improvement helped the New Zealand Dollar to gain fresh traction against its rivals, with the risk of further Reserve Bank of New Zealand (RBNZ) action diminishing. A general increase in market risk aversion also benefitted NZD exchange rates overnight.
As long as markets remain in a risk-positive mood this should support demand for the New Zealand Dollar in the near term.
Data Releases
August 14th 10:30 AUD Westpac Consumer Confidence Index (AUG) 98.7
August 14th 16:00 EUR German Gross Domestic Product (YoY) (2Q) -0.3%
August 14th 18:30 GBP Consumer Price Index (YoY) (JUL) 1.9%
August 14th 22:30 USD Import Price Index (YoY) (JUL) -2.9%
August 14th 22:30 USD Export Price Index (YoY) (JUL) -1.4%