Pound Slides as Markets Brace for Collapse of Brexit Negotiations

Weakening Business Confidence Limits Australian Dollar Appeal

In another negative signal for the Australian economy September’s NAB business confidence index disappointed expectations, dipping from 1 to 0. This latest sign of faltering sentiment left the Australian Dollar on a weaker footing against its rivals yesterday, with markets still seeing high odds of further Reserve Bank of Australia (RBA) monetary loosening. As trade tensions between the US and China showed fresh signs of escalation the appeal of the risk-sensitive currency diminished further.

A similarly lacklustre reading from the Westpac consumer confidence index for October could put additional pressure on AUD exchange rates.

Pound Stumbles amid Fear of Brexit Talks Collapsing

Fears that Brexit talks could be on the verge of breaking down left the Pound on the back foot. With the two sides at a reported deadlock over the Irish border issue the risk of an agreement not being reached ahead of the current deadline increased. GBP exchange rates experienced a sharp slump in the wake of the news, even though the EU is still expected to approve any potential request for a fresh extension.

However, if Boris Johnson’s government shows no inclination to request an extension this is likely to weigh heavily on the Pound for the foreseeable future.

German Production Uptick Fails to Shore up Euro

EUR exchange rates found a temporary boost on the back of August’s German industrial production data, which showed an unexpected rebound on the month. However, the positive reaction to this improvement soon faded thanks to the often volatile nature of monthly production data. As the odds of Germany slipping into a state of technical recession remain higher than investors would like the Euro returned to a weaker footing.

Ahead of tomorrow’s German trade data the single currency may struggle to find any significant upwards momentum against its rivals.

US Dollar Makes Gains in Spite of Deteriorating Business Optimism

US data continued to paint an underwhelming picture of the domestic outlook overnight as the NFIB small business optimism index failed to pick up on the month. Investors were also disappointed as September’s producer price index figures fell short of forecast, pointing towards a weaker level of inflationary pressure within the US economy. Even so, with market risk appetite generally fading the US Dollar still benefitted from market demand for safe haven assets.

Fresh comments from Federal Reserve Chair Jerome Powell could see USD exchange rates trending lower, though, as investors assess the likelihood of an October interest rate cut.

Building Permit Uptick Unable to Boost Canadian Dollar

While August’s building permits showed a surprise improvement, surging 6.1% on the month, this failed to keep the Canadian Dollar on a stronger footing. Even with the Canadian construction sector showing greater signs of resilience investors were more concerned by the latest decline in oil prices. With the global trade outlook continuing to deteriorate there was little incentive to favour the commodity-correlated Canadian Dollar.

As long as oil prices remain in decline support for CAD exchange rates is likely to prove limited.

New Zealand Dollar Pushes Higher Despite Worries over US-China Trade Talks

Hopes of progress towards a US-China trade agreement faded last night in the wake of reports that the Chinese trade delegation may leave Washington one day earlier than planned. This suggests that the latest round of trade talks are unlikely to result in a significant breakthrough, leaving markets with little cause for confidence. However, with many of the majors suffering selling pressure the downside potential of the New Zealand Dollar was muted.

Another weak reading from the ANZ truckometer could see NZD exchange rates fall sharply out of favour, though, as worries over the strength of the economic outlook increase.

Data Releases

October 9th 07:00 NZD ANZ Truckometer (MoM) (SEP)
October 9th 09:30 AUD Westpac Consumer Confidence (OCT) -0.3%
October 10th 00:30 USD Federal Reserve Governor Jerome Powell Speech

Louisa Heath