4% Drop in Exports Fuels Australian Dollar Selling

Australian Dollar Stumbles as Export Volumes Contract

Confidence in the health of the Australian economy took a fresh blow as July’s export volumes showed a sharp -4% contraction on the month. This weaker reading highlights the pressure that the economy remains under, in spite of recent signs of an easing in global Covid-19 disruption.

Meanwhile, the Australian Dollar also shed ground against its rivals as the trade balance remained in a state of surplus.

However, heading in to the weekend solid monthly growth in retail sales could help to shore up AUD exchange rates.

Pound Lower despite Strong Expansion in Service Sector

August’s finalised UK services PMI fell short of forecast, clocking in at 58.8 as opposed to the initial estimate of 60.1. Although this still demonstrates a strong monthly expansion for the sector, investors were underwhelmed by the data.

An increase in job cuts offered particular cause for concern as the government’s furlough scheme began to unwind, indicating the continued fragility of the labour market and limiting the appeal of the Pound.

Looking ahead, while the construction sector only accounts for a small fraction of the UK gross domestic product, a solid reading from August’s construction PMI may still offer the Pound a boost tonight.

Euro Remains Out of Favour Thanks to Negative Retail Sales

Eurozone retail sales unexpectedly fell into decline in July, dipping -1.3% on the month as consumer confidence appeared to fade.

This gave investors fresh incentive to sell the Euro, particularly in the wake of August’s underwhelming set of Eurozone services PMIs. With signs pointing towards the currency union struggling to sustain its initial bout of recovery from the Covid-19 crisis, the single currency was left exposed to a downside bias.

If German factory orders show a smaller degree of growth on the month for July this could see EUR exchange rates trending lower.

Widened Trade Deficit Fails to Dent US Dollar Recovery

USD exchange rates still rallied overnight despite the US trade deficit swelling to -63.6 billion in July, showing a further deterioration in trade conditions.

Markets instead took encouragement from the US services PMI, which jumped well into growth territory after experiencing stagnation in July. This signal of renewed strength within the service sector allowed the US Dollar to hold onto a stronger footing across the board, recovering against its rivals once again.

Tonight’s non farm payrolls report looks set to provoke fresh volatility for the US Dollar if the labour market fails to show further stabilisation.

Canadian Dollar Struggles to Capitalise on Stronger Exports

A stronger month of export growth helped to limit the widening of the Canadian trade deficit last night.

Rising export volumes bode well for the economy’s ability to bounce back from the pandemic disruption seen in the first half of the year. Even so, as the general market sentiment turned bearish, the Canadian Dollar saw only limited gains against its more risk-sensitive rivals.

However, an improvement in August’s unemployment rate may offer CAD exchange rates a stronger rallying point.

Risk Aversion Limits Appeal of New Zealand Dollar

The fading impact of Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr’s recent comments saw the New Zealand Dollar come under renewed pressure yesterday.

In the absence of supportive New Zealand data, NZD exchange rates trended lower, pressured by a resurgence in market risk aversion.

Unless investors return to a more risk-positive mentality in the near term, the New Zealand Dollar may struggle to recover its lost ground.

Data Releases

September 4th 11:30 AUD Retail Sales (MoM) (JUL) 3.3%
September 4th 16:00 EUR Factory Orders (MoM) (JUL) 5%
September 4th 18:30 GBP Construction PMI (AUG) 58.5
September 4th 22:30 CAD Unemployment Rate (AUG) 10.1%
September 4th 22:30 USD Unemployment Rate (AUG) 9.8%

Louisa Heath