Australian Dollar Climbs in Defiance of RBA’s Call for Weaker Currency

Australian Dollar (AUD) Shakes off Dovish Note in RBA Minutes

The Australian Dollar (AUD) returned to a stronger footing on Tuesday in defiance of the Reserve Bank of Australia’s (RBA) meeting minutes.

While policymakers noted that a weaker Australian Dollar would help to support the economic recovery this failed to gain any particular traction with investors. Instead, AUD exchange rates pushed higher in response to news that Chinese industrial production had surged 5.6% on the year in August. As a stronger Chinese economy bodes well for commodity prices this positive showing boosted the ‘Aussie’.

A lacklustre performance from the Westpac leading index could see the Australian Dollar come under fresh pressure this morning.

Pound (GBP) Slides as UK Redundancies Spike Higher

The Pound (GBP) fell largely out of favour yesterday as UK redundancies saw their fastest increase since 2009 in the three months to July.

Although more than 5 million workers were still on furlough in July this was not enough to prevent a 0.6% increase in unemployment on the month. As a result, confidence in the future of the labour market diminished, given the impending end of the furlough scheme. The mood towards the Pound also soured as MPs voted in favour of the controversial Internal Market bill, stoking the odds of a no-deal scenario.

If the inflation rate turned negative on the month as forecast in August this may encourage GBP exchange rates to shed fresh ground.

Euro (EUR) Loses Traction Thanks to Negative French Inflation

The Euro (EUR) failed to hold onto its bullish run during yesterday’s European session after confirmation that the French inflation rate had turned negative.

As August’s monthly inflation rate dipped to -0.1% this offered fresh evidence of the challenges facing the Eurozone economy. Until inflationary pressure can recover and start pushing towards the European Central Bank’s (ECB) 2% target this is likely to limit any potential single currency gains. This overshadowed an improvement in the ZEW economic sentiment index.

A widening of the Eurozone trade surplus may encourage another bout of demand for the Euro this evening.

US Dollar (USD) Under Pressure as Manufacturing Sector Loses Momentum

The US Dollar (USD) faltered as August’s industrial production figures fell short of forecasts, denting confidence in the economic outlook.

As production only increased 0.4% on the month this represented a sharp slowdown from July’s 3.5% surge. With the manufacturing sector apparently struggling to maintain the initial momentum of its recovery a sense of market jitters returned. Even a solid uptick in the Empire State manufacturing index was not enough to shore up USD exchange rates.

Growing anticipation ahead of the Federal Reserve’s latest policy announcement may keep the US Dollar on the back foot during trade today.

Canadian Dollar (CAD) Softens on Disappointing Manufacturing Sales Growth

The Canadian Dollar (CAD) stumbled as July’s manufacturing sales saw a smaller increase than forecast.

Growth of just 7% on the month, as opposed to the surge of 23% seen in June, limited the appeal of the Canadian Dollar. Even though the data was still positive in nature doubts over the underlying health of the Canadian economy helped to limit the impact of the figures, particularly in the face of persistent oil market weakness.

A soft consumer price index reading may drive CAD exchange rates to shed additional ground tonight.

New Zealand Dollar (NZD) Benefits from Chinese Production Improvement

The New Zealand Dollar (NZD) gained some support from the positive Chinese production data as confidence in the global outlook improved.

While the risk of a fresh Covid-19 downturn remains, thanks to renewed outbreaks in a number of countries, investors still took a positive outlook on Tuesday. A weaker US Dollar also helped to shore up the New Zealand Dollar, with risk appetite generally strengthened by the underwhelming nature of the latest US data.

Any resurgence in market worries may expose the New Zealand Dollar to downside pressure in the days ahead.

Data Released

10:30 AUD Westpac Leading Index (Aug) 0.1%
16:00 GBP Consumer Price Index (Aug) -0.6%
19:00 EUR Eurozone Balance of Trade (Jul) €25.1 billion
22:30 CAD Consumer Price Index (Aug) 0.1%
04:00 USD Federal Open Market Committee Rate Decision 0.25%

Louisa Heath