US-China Retaliations Weigh on the Australian Dollar

Australian Dollar (AUD) Struggles as US-China Tensions Dominate

The Australian Dollar (AUD) remained under pressure at the end of last week’s session as US-Sino tensions dominated markets.

In retaliation for being told to shut its Houston consulate, China ordered Washington to close its consulate in Chengdu at the end of the week. This offset upbeat data showing that both Australia’s manufacturing and services PMIs returned to growth in July.

The ‘Aussie’ could edge lower this morning following a speech from the Reserve Bank of Australia’s (RBA) Assistant Governor, Christopher Kent. If his tone is overly dovish it will likely send AUD lower.

Pound (GBP) Braces for Best Week Since Early June

The Pound (GBP) was set for its best week against the US Dollar since the first week of June on Friday. Britain’s PMI surveys beat expectations, which boosted the Pound as activity in the services and manufacturing sectors rebounded and posted growth.

However, Sterling gains were limited by the earlier UK-EU clash after Brussels said it was ‘unlikely’ a deal between the two would be reached.

Traders may remain cautious this week if attention turns back to Brexit as traders fret over the very real possibility of a no-deal Brexit.

Euro (EUR) Boosted as PMI Surveys Suggest Strong Rebound in Q3 GDP

The Euro (EUR) made significant gains against riskier assets but lost some of its safe-haven appeal and struggled against the Japanese Yen (JPY).

The single currency was offered some support at the end of the week as the bloc’s PMIs rallied above 50 in July as demand in both the services and manufacturing sectors bounced back. This confirmed market expectations of a strong third quarter growth figure for the Eurozone.

Looking ahead the Euro could edge higher following the release of today’s German Ifo Business Climate survey if data reveals July’s figure has jumped higher than forecast.

US Dollar (USD) Under Pressure as Congress Stuck in Deadlock

The US Dollar (USD) struggled at the end of the week as demand faltered, losing its appeal as a safe-haven asset.

Traders have been focused on the next US stimulus package, which is in deadlock in Congress while some unemployment benefits are due to expire at the end of the month.

Meanwhile, flash PMI data revealed that while the manufacturing sector returned to growth, the services sector remained in contraction territory.

Markets could receive an upswing of support if US durable goods orders increase more than expected in June, potentially lifting market sentiment in the US

Canadian Dollar (CAD) Falls despite Oil Price Gains

The Canadian Dollar (CAD) gained little during Friday’s session despite oil prices edging higher at the end of the week.

Prices were supported by a weaker US Dollar, although growing tensions between the US and China limited gains. If tensions increase and continue to weigh on markets, it could send oil prices lower this week, and in turn send the oil-sensitive ‘Loonie’ lower today.

New Zealand Dollar (NZD) Flat as US Forced to Shut Chengdu Consulate

The New Zealand Dollar (NZD) remained largely flat at the end of last week as US-China tensions increased. In a tit-for-tat measure, China instructed the United States to close its US consulate in the city of Chengdu.

Looking ahead, if relations continue to deteriorate it could send the risk-sensitive ‘Kiwi’ lower.

Upcoming Data

27 July 10:00                       AUD                       RBA Kent Speech

27 July 18:00                       EUR                        German Ifo Business Climate                                       88.5

27 July 20:00                       EUR                        France Unemployment Benefit Claims (June)       -42K

27 July 22:30                       USD                       Durable Goods Orders (June)                                     5%

Louisa Heath

louisa.heath@torfx.com


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