Pound Weakens as Johnson’s Irish Border Plans Face Rejection

Odds of Further RBA Action Weigh Down Australian Dollar

Support for the Australian Dollar remained limited on Wednesday as markets continued to price in the likelihood of further Reserve Bank of Australia (RBA) policy easing to come. With investors expecting to see the central bank cut interest rates to a fresh record low in the months ahead AUD exchange rates remained lacking in strength. Lingering worries over the health of the global trade outlook added to the bearish mood of the antipodean currency.

The mood towards the Australian Dollar could sour further this morning if August’s trade surplus narrows as forecast.

Pound Softens as EU Looks Set to Reject Johnson’s Proposal

The Pound fell further out of favour with investors overnight as anticipation mounted for the unveiling of Boris Johnson’s ‘final Brexit offer’. As EU officials had already rejected plans for the Irish border seen in an earlier leak the chances of an imminent breakthrough looked slim. As the UK construction PMI slipped deeper into contraction territory this put additional pressure on GBP exchange rates.

A similarly underwhelming showing from the corresponding services PMI may see the Pound extend its slump further, given the significant role of the service sector in driving UK growth.

Euro Shakes off Underwhelming Spanish Employment Data

EUR exchange rates made some modest gains last night, benefitting from the relative weakness of many of the other majors. Although Spanish employment data proved disappointing, suggesting a loosening of the labour market, this was not enough to drag the single currency lower for the time being. While worries over the health of the German and wider Eurozone economies remain the Euro still found room to trend higher on Wednesday.

Demand for the single currency could pick up today, however, if August’s Eurozone retail sales figures show a solid uptick in consumer spending.

Signs of Weakening US Labour Market Diminish US Dollar Appeal

As September’s ADP employment change figure fell short of forecast this limited the appeal of the US Dollar. With the data only showing an increase of 135,000 on the month investors were encouraged to take a more cautious view ahead of Friday’s non-farm payrolls report. An unexpectedly sharp decline in September’s ISM New York index also put pressure on USD exchange rates. However, with market risk appetite generally fading the downside potential of the US Dollar was still limited.

A solid showing from September’s ISM non-manufacturing composite index could encourage a greater sense of confidence in the underlying health of the US economy, though.

Rising US Crude Inventories Drag on Canadian Dollar

Another significant weekly increase in US crude oil stockpiles helped to drag CAD exchange rates lower last night. As stocks saw an increase of more than 3 million barrels the global oil price naturally weakened, driven by anxiety over the prospect of another oversupply glut. With market risk appetite generally limited the Canadian Dollar failed to find any particular support.

As anticipation mounts for Friday’s Canadian trade data CAD exchange rates look set to remain biased to the downside.

New Zealand Dollar Lacks Support amid Global Trade Worries

In the wake of the poor ANZ business confidence index the New Zealand Dollar struggled to gain traction against its rivals. Lingering anxiety over the health of the global economy put an additional dampener on NZD exchange rates, with investors adopting a more risk-averse outlook.

Unless markets see reason to bet on the prospect of a recovery in global trade growth the potential for the New Zealand Dollar to return to a positive footing appears muted.

Data Releases

October 3rd 11:30 AUD Trade Balance (AUG) 6 billion
October 3rd 18:30 GBP Services PMI (SEP) 50.3
October 3rd 19:00 EUR Eurozone Retail Sales (YoY) (AUG) 1.9%
October 4th 00:00 USD ISM Non-Manufacturing Composite Index (SEP) 55.1

Louisa Heath