Weakening GDP Limits Australian Dollar Appeal
As the second quarter gross domestic product saw growth ease from 1.7% to 1.4% on the year this limited the appeal of the Australian Dollar. With growth stalling in the face of global trade tensions confidence in the economic outlook naturally diminished. Coupled with the underwhelming nature of the latest services and composite PMIs, which remained in a state of contraction, this left AUD exchange rates on the back foot.
A narrowing of July’s trade surplus looks set to put additional pressure on the Australian Dollar today.
Pound Shakes Off Underwhelming Services PMI
The UK economy continued to show signs of weakness as August’s services PMI eased to a lacklustre 50.6. With the service sector struggling to deliver growth the risk of a potential third quarter recession continues to loom over the economy. However, after the government dramatically lost its parliamentary majority the easing odds of a no-deal Brexit scenario helped to keep the Pound on a positive footing.
The latest developments in parliament are likely to fuel additional volatility for GBP exchange rates in the near future.
Positive Eurozone Services PMIs Support Euro
An unexpected upward revision to the finalised raft of Eurozone services PMIs helped to shore up the single currency overnight. This modest improvement in service sector performance suggests that the Eurozone economy is in a slightly healthier state than previously thought. Coupled with relatively solid retail sales data this gave EUR exchange rates a leg up against many of the majors.
However, another sharp decline in German factory orders could see the Euro fall out of favour once again this afternoon.
US Dollar Falters in Spite of Narrowed Trade Deficit
While the US trade deficit narrowed in July it still fell short of market expectations, limiting the benefit to the US Dollar. As the trade gap with China continued to swell the risk of a fresh escalation in trade tensions remains, putting pressure on USD exchange rates. Even so, as Federal Reserve policymakers showed signs of reticence over their next monetary policy move this helped to limit the downside pressure.
Even so, a lower ADP employment change figure may dent USD exchange rates as markets brace for the latest non-farm payrolls report.
Steady BOC Boosts Canadian Dollar Demand
As the Bank of Canada (BOC) left interest rates on hold at its September policy meeting the appeal of the Canadian Dollar strengthened. BOC policymakers maintained a relatively upbeat message, defying the general global shift towards looser monetary policy. This show of limited hawkishness encouraged investors to favour the Canadian Dollar, in spite of lingering economic worries.
Ahead of Friday’s labour market data, however, CAD exchange rates may struggle to hold onto this positive momentum.
Stronger Commodity Prices Benefit New Zealand Dollar
A modest rebound in August’s ANZ commodity price index offered a boost to the New Zealand Dollar, even though it failed to reverse the previous month’s contraction. Solid house price data also helped to support NZD exchange rates, temporarily easing worries over the health of the domestic outlook.
Without the support of fresh domestic data, though, the New Zealand Dollar remains vulnerable to downside pressure today.
Data Releases
September 5th 11:30 AUD Trade Balance (JUL) 7 billion
September 5th 16:00 EUR German Factory Orders (YoY) (JUL) -4.2%
September 5th 22:15 USD ADP Employment Change (AUG) 149,000