Rising Threat of Brexit Talks Collapsing Drives Pound Sell-off

Stronger Chinese Trade Figures Fail to Boost Australian Dollar

A better-than-expected performance from August’s Chinese trade data was not enough to spur much demand for the Australian Dollar yesterday.

While export volumes saw a solid uptick on the year, as the world’s second largest economy shook off the impact of the pandemic, market confidence remained limited. This kept AUD exchange rates from pushing higher as worries over the strength of the global outlook persist.

If the NAB business confidence index weakens as anticipated in August the Australian Dollar could shed further ground.

Spike in No-Deal Brexit Fears Fuels Pound Decline

The mood towards the Pound soured significantly at the start of the week as tensions over Brexit saw a fresh resurgence.

Reports that the UK government could backtrack on previous commitments on the Irish border issue stoked fears that the odds of a hard Brexit scenario have climbed higher. This left GBP exchange rates on the back foot as investors braced against the risk of talks between UK and EU officials collapsing.

Unless tensions between the two sides show signs of easing, this sense of anxiety will likely keep the Pound under pressure in the days ahead.

Euro Shakes off Underwhelming German Industrial Production

German industrial production data released yesterday fell short of the mark in July, showing growth of just 1.2% on the month as opposed to the forecast 4.7%.

Even so, this slightly underwhelming performance was not enough to put EUR exchange rates under any notable pressure. With investors turning more risk averse once again, the single currency benefitted from the weakness of the Pound, even as worries over the performance of the Eurozone economy lingered.

Confirmation that the Eurozone gross domestic product plunged deeper into contraction in the second quarter may see the Euro stumble tonight.

Labour Day Fails to Knock US Dollar off Positive Footing

The US Dollar held onto a generally positive footing yesterday despite closed US markets due to Labour Day.

With investors turning jittery in response to the latest Brexit developments and lingering Covid-19 worries, USD exchange rates remained steady and gained against GBP. On top of this, speculation mounted over further deterioration of US-China trade relations after a strong uptick in Chinese export volumes, buoying the US Dollar.

The return of the US Senate and House of Representatives on Tuesday from their month-long summer recess will be a focus for USD investors this week. The latest US stimulus package remained in deadlock throughout August and markets will await signs of progress to aid the US economy’s recovery.

Sharp Downturn in Oil Prices Drags on Canadian Dollar

The Canadian Dollar came under pressure as the oil market downturned after Saudi Arabia cut its pricing for October crude sales.

This highlighted the decline in demand that had begun to affect markets even before the advent of the Covid-19 pandemic. As a result, the commodity-correlated Canadian Dollar struggled to find traction last night.

The Canadian Dollar is likely to continue struggling today ahead of the upcoming Bank of Canada (BoC) policy meeting. While no action is expected, the sense of anticipation will likely weigh on CAD exchange rates.

New Zealand Dollar Struggles amid Risk Aversion

Support for the New Zealand Dollar proved limited on Monday in the absence of any fresh domestic data.

With investors in a distinctly dovish mood, there was little incentive to buy into the antipodean currency at this stage, even as Chinese trade bettered forecasts.

Tomorrow’s second quarter manufacturing sales reading may drag the New Zealand Dollar lower as fresh evidence of the negative impact of the Covid-19 crisis emerges.

Data Releases

September 8th 11:30 AUD NAB Business Confidence (AUG) -18
September 8th 19:00 EUR Eurozone Gross Domestic Product (QoQ) (2Q 3rd Est) -12.1%
September 8th 20:00 USD NFIB Small Business Optimism Index (AUG) 97

Louisa Heath