Hopes of US-China Breakthrough Lift Australian Dollar
Positive noises on trade from the White House helped to encourage gains for the Australian Dollar yesterday as hopes of progress towards a US-China trade agreement picked up. Although the likelihood of an imminent breakthrough still appears limited this was enough to prompt a fresh bout of market risk appetite. As long as the two sides look on course to deescalate trade tensions AUD exchange rates are likely to find support.
Even so, as worries over the global growth outlook remain the potential for further Australian Dollar gains looks limited.
Falling Odds of No-Deal Brexit Boost Pound
Although MPs failed to approve Boris Johnson’s proposed Brexit deal on Saturday this was not enough to weigh down the Pound for long. Markets now see lower odds of a no-deal Brexit scenario, with parliamentary arithmetic suggesting that Johnson could have just enough votes to push his deal through. Although a significant degree of uncertainty still hangs over the UK outlook the rising likelihood of a deal gave investors incentive to pile into the Pound.
However, if the agreement cannot be approved over the coming days the Pound is likely to fall sharply out of favour.
Euro Stalls as Bundesbank Forecasts German Growth Contraction
As the Bundesbank released its latest monthly report the Euro came under renewed pressure. Germany’s central bank warned that the domestic economy likely contracted in the third quarter, resulting in a technical recession. With the Eurozone’s powerhouse economy looking set to lose further momentum in the months ahead worries over the outlook of the wider currency union picked up. A mixed set of German producer price index data also put a dampener on EUR exchange rates.
Without the support of fresh Eurozone data the single currency may struggle to find a rallying point in the near future.
US Dollar Loses Momentum amid Market Optimism
A growing sense of market optimism left the US Dollar on the back foot last night thanks to hopes of progress towards a US-China trade agreement. With investors in a more risk-positive mood the appeal of the safe-haven US Dollar diminished, even though a trade deal would offer a boost to the US economy. Easing anxiety over political developments in the UK also helped to drive demand away from the US Dollar in favour of higher-yielding assets.
A further decline in the Richmond Fed manufacturing index may fuel further losses for USD exchange rates tonight.
Canadian Dollar Trends Higher in Spite of Election Jitters
The bullish mood of investors gave the Canadian Dollar a lift even as anticipation continued to build for the highly-contested federal election. While markets see a risk of neither major party gaining an outright majority this failed to weigh down CAD exchange rates at this stage. Weaker oil prices were also unable to prevent the Canadian Dollar gaining ground thanks to the general improvement in market sentiment.
If August’s retail sales figures prove underwhelming, though, support for the Canadian Dollar could easily fade overnight.
Risk Appetite Fuels New Zealand Dollar Gains
Market positivity also helped to boost the New Zealand Dollar at the start of the week, in spite of a lack of fresh domestic data. With investors seeing more reason to favour higher-yielding assets NZD exchange rates found fresh room for growth over the course of the day. Lingering worries over the health of the New Zealand economy were not enough to prevent the New Zealand Dollar pushing higher.
However, this uptrend could easily falter if the optimistic mood of investors shows any signs of fading today.
Data Releases
October 22nd 20:00 GBP CBI Business Optimism (OCT) -30
October 22nd 22:30 CAD Retail Sales (MoM) (OCT) 0.5%
October 22nd 00:00 USD Richmond Fed Manufacturing Index (OCT) -14