Reports of ‘Close’ US-China Trade Agreement Boost Australian Dollar

US-China Trade Breakthrough Lifts Australian Dollar

Reports that the US and China are ‘close to finalising’ a phase one trade deal encouraged the Australian Dollar to push higher at the start of the week. While the two sides remain some way from a final resolution of the long-running trade dispute the prospect of tangible progress boosted market risk appetite once again. This helped the commodity-correlated Australian Dollar to gain fresh ground against its rivals, in spite of a lack of domestic data.

Even so, comments from Reserve Bank of Australia (RBA) Governor Philip Lowe could see AUD exchange rates stumble today as investors remain wary of the prospect of greater central bank dovishness.

Brexit Extension Offers Pound Sterling Boost

As EU leaders agreed to a three-month ‘flextension’ of the Brexit deadline the mood towards the Pound naturally improved. Although the offer was yet to be formally approved this pushed the odds of a no-deal Brexit lower, reducing the risk of the UK crashing out of the EU before the end of the week. However, a sense of political uncertainty persisted as MPs prepared to vote on Boris Johnson’s latest general election motion.

A weakening in consumer credit availability may drag the Pound back this evening, even if domestic political anxiety shows signs of easing.

Euro Stumbles After Underwhelming German Import Price Index

September’s German import price index figures offered investors little cause for confidence yesterday, in spite of a stronger performance on the month. As the year-on-year price index continued to contract, slumping -2.5%, this indicated a persistent lack of inflationary pressure within the Eurozone’s powerhouse economy. Coupled with an underwhelming Eurozone money supply and bank lending data this left the Euro on a weaker footing.

EUR exchange rates could shed further ground over the course of the day if Bundesbank officials maintain a negative view of the German economic outlook.

Manufacturing Index Decline Weighs Down US Dollar

A general increase in market risk appetite weighed on the US Dollar, in spite of the benefits that a US-China trade breakthrough holds for the world’s largest economy. As October’s Dallas Fed manufacturing index saw a surprise decline from 1.5 to -5.1 on the month this added to the bearish mood of USD exchange rates. With weaker trade conditions continuing to drag on economic growth the appeal of the US Dollar was naturally limited last night.

However, as forecasts point towards an uptick in the consumer confidence index tonight USD exchange rates could find a rallying point.

Prospect of Higher Global Oil Production Dents Canadian Dollar

The oil market started the week on a negative footing as signs pointed towards a further increase in global crude production. This limited the appeal of the commodity-correlated Canadian Dollar, even as its rivals benefitted from the prospect of a US-China trade breakthrough. Signs of weakness from the Chinese industrial sector also put a dampener on CAD exchange rates.

As markets brace for the Bank of Canada’s (BOC) policy announcement the Canadian Dollar may struggle to find any particular gains.

Domestic Worries Keep New Zealand Dollar Under Pressure

As worries over the health of the New Zealand economy persisted NZD exchange rates struggled to capitalise on the improved sense of market risk appetite. Without an official breakthrough on trade the New Zealand Dollar looks set to remain under pressure in the near term.

Until investors find cause for confidence in the economic outlook NZD exchange rates could shed further ground.

Data Releases

October 29th 16:45 AUD Reserve Bank of Australia Governor Lowe Speech
October 29th 19:30 GBP Consumer Credit (YoY) (SEP) 0.9 billion
October 29th 00:00 USD Consumer Confidence Index (OCT) 127.5

Louisa Heath