Mixed Messages over US-China Trade Weigh Down Australian Dollar

US-China Trade Tensions Drag on Australian Dollar

Mixed signals from US and Chinese officials left the Australian Dollar on a weaker footing as hopes of a trade deal breakthrough faded. As the US House of Representatives passed a bill aiming to protect the rights of Hong Kong protestors relations between the two sides appeared to sour once again. With the White House still threatening to impose higher tariffs on Chinese exports the prospect of any imminent deal diminished, weighing down the risk-sensitive Australian Dollar.

With forecasts pointing towards the Australian manufacturing sector falling back into a state of contraction in November AUD exchange rates look vulnerable to further losses this morning.

Widened UK Budget Deficit Weighs on Pound

Support for the Pound remained muted in the wake of October’s public sector net borrowing report, which saw the budget deficit widen from -7.26 billion to -10.51 billion. Although this sharp increase in government borrowing was likely the result of intensified preparations for the former Brexit deadline the figure still offered investors little cause for confidence. As the Labour Party revealed its new election manifesto political jitters continued to dominate the mood of GBP exchange rates.

However, if November’s UK services PMI can demonstrate renewed growth on the month this could offer the Pound a fresh rallying point ahead of the weekend.

ECB Minutes Limit Euro Appeal

The content of the European Central Bank’s (ECB) October meeting minutes failed to offer the Euro any particular boost. As the minutes revealed general agreement that risks to the Eurozone economy are ‘still tilted to the downside’ this left the possibility of further monetary loosening to come on the table. Although some policymakers called for the central bank to adopt a more ‘wait and see’ approach this was not enough to encourage the single currency.

Unless the German manufacturing PMI shows a solid improvement on the month the appeal of the Euro is likely to remain limited.

Fed Steadiness Fails to Boost US Dollar

In spite of the Federal Reserve’s signal that interest rates will remain on hold in the near future the US Dollar struggled to find much traction against its rivals overnight. Another negative month for the CB leading index cast fresh doubt over the health of the US economic outlook, adding to worries that momentum is likely to falter further in the fourth quarter. Even though November’s Philadelphia Fed manufacturing index bettered expectations, strengthening from 5.6 to 10.4 on the month, this failed to shore up USD exchange rates.

A resilient showing from the latest US manufacturing PMI could encourage the US Dollar to push higher tonight, though.

Canadian Dollar Rallies as BOC Looks Set to Remain on Hold

Demand for the Canadian Dollar picked up sharply in response to comments from Bank of Canada (BOC) Governor Stephen Poloz last night. As Poloz indicated that he is comfortable with the current level of Canadian monetary policy this prompted markets to cut the odds of any future policy easing. This positive commentary helped to limit the impact of a surprise decline in the ADP employment change figure.

With markets expecting a rebound in September’s monthly retail sales the Canadian Dollar may find fresh support heading into the weekend.

Card Spending Slump Dents New Zealand Dollar

NZD exchange rates struggled to maintain a positive footing yesterday after credit card spending saw a -1.5% decline on the month. This suggests that sentiment among New Zealand consumers is weakening as worries over the global growth outlook persist. Coupled with the latest anxiety surrounding US-China trade discussions this left the New Zealand Dollar lacking in any particular support.

Without the release of fresh domestic data NZD exchange rates looks set to remain under pressure today.

Data Releases

November 22nd 08:00 AUD Manufacturing PMI (NOV) 49.8
November 22nd 18:30 EUR Germany Manufacturing PMI (NOV) 43
November 22nd 19:30 GBP Services PMI (NOV) 50.2
November 22nd 23:30 CAD Retail Sales (MoM) (SEP) 0.1%
November 23rd 00:45 USD Manufacturing PMI (NOV) 51.5

Louisa Heath