Pound Stumbles as UK Retail Sees Worst September Since 1995

Weak Construction Performance Softens Australian Dollar

As the construction PMI sunk further into contraction territory in September the mood towards the Australian Dollar soured. While the construction sector is not the primary driver of the Australian economy this latest sign of weakness still left investors with little cause for confidence in the domestic outlook. Elevated international trade tensions also put pressure on the risk-sensitive Australian Dollar as markets continued to brace against the likelihood of a global growth slowdown.

However, an uptick in the latest NAB business confidence index could offer AUD exchange rates a rallying point this morning.

Sharp Drop in UK Retail Sales Limits Pound Upside

An underwhelming performance from the latest British Retail Consortium (BRC) sales figures put renewed pressure on GBP exchange rates as the sector suffered its worst September since its records began in 1995. Sales saw a sharp decline of -1.3% on the year as Brexit-based uncertainty appeared to drag on consumer spending, with non-essential purchases seeing a particularly sharp fall. With Boris Johnson’s Brexit proposals failing to move forward talks the risk of a no-deal scenario continued to hang over the Pound.

Fresh comments from Bank of England (BoE) Governor Mark Carney could provoke additional volatility for GBP exchange rates today.

Euro Bounces Back in Spite of German Factory Orders Drop

Worries over the outlook of the German economy picked up anew on the back of August’s factory orders data as the manufacturing sector showed fresh signs of slowing. As orders dropped -0.6% on the month this raised fresh concerns over the likelihood of an imminent technical recession, diminishing the appeal of the Euro. Even so, this failed to prevent EUR exchange rates finding support in the face of weakening market risk appetite.

A similarly disappointing showing from the latest German industrial production figures could see the single currency stumble, however.

Hawkish Fed Commentary Benefits US Dollar

Hawkish commentary from Kansas City Fed President Esther George helped to support the US Dollar. Although George indicated a willingness to potentially cut interest rates further if upcoming data proves worse than expected this failed to weigh on USD exchange rates. While markets still see high odds of the Federal Reserve cutting interest rates again at the end of the month George’s dissent encouraged investors to buy back into the softened US Dollar.

Even so, a weaker showing from the NFIB small business optimism index may weigh heavily on USD exchange rates as confidence in the economic outlook deteriorates.

Oil Price Uptick Boosts Canadian Dollar

The Canadian Dollar edged higher against many of the majors overnight thanks to an uptick in the oil market. Fears of global oversupply eased at the start of the week, helping oil prices to recover some of their recent losses. Even so, CAD exchange rates struggled to make significant headway as anxiety began to mount in anticipation of the upcoming US-China trade talks.

Confidence in the underlying health of the Canadian economy could diminish as forecasts point towards a decline in August’s building permits data.

Global Trade Worries Weigh on New Zealand Dollar

Support for the New Zealand Dollar proved lacking yesterday in the absence of any fresh domestic data. With markets seeing cause for concern over the strength of the global economic outlook the risk-sensitive New Zealand Dollar was left on the back foot. As the risk of further Reserve Bank of New Zealand (RBNZ) interest rate cuts remains NZD exchange rates failed to find any positive footing.

As investors continue to brace for the US-China trade discussions the New Zealand Dollar looks set to remain biased to the downside.

Data Releases

October 8th 10:30 AUD NAB Business Confidence (SEP) 2
October 8th 16:00 EUR German Industrial Production (MoM) (AUG) 0%
October 8th 20:00 USD NFIB Small Business Optimism (SEP) 102.6
October 8th 22:15 CAD Building Permits (MoM) (AUG) -2%

Louisa Heath