Australian Dollar Struggles on Surprise Trade Balance and RBA’s Dovish Outlook

Australian Dollar (AUD) Falters as Trade Surplus Narrows

The Australian Dollar (AUD) came under renewed pressure yesterday as August’s trade data failed to impress, showing an unexpectedly narrowed surplus.

This limited the appeal of the Australian Dollar as exports experienced another notable slump on the month, weakening confidence in the economic outlook. Additionally, the Reserve Bank of Australia’s (RBA) policy meeting failed to shore up AUD exchange rates, given that policymakers confirmed their willingness to leave monetary policy looser for longer.

Without a turnaround in market risk appetite, the ‘Aussie’ may struggle to return to a positive footing in near term.

Pound (GBP) Unable to Capitalise on UK Construction PMI Uptick

The Pound (GBP) failed to benefit from an improvement in the latest UK construction PMI as worries over the labour market continue to linger.

While the headline PMI unexpectedly picked up from 54.6 to 56.8, indicating stronger growth on the month, investors largely shrugged off the data given that the construction sector only accounts for a small fraction of GDP. However, evidence that job losses in the sector had continued added to existing anxiety over a possible wave of job losses across the UK economy.

Even so, a solid performance from the Halifax house price index may encourage modest gains, but the Pound will remain sensitive to Brexit headlines and market sentiment.

Euro (EUR) Benefits from Strong German Factory Orders Growth

The Euro (EUR) rallied on the back of a solid performance from Germany’s factories in August.

As factory orders experienced growth of 4.5% on the month, exceeding July’s performance, this encouraged hopes of greater resilience within the Eurozone’s powerhouse economy. While the latest signals from the construction sector across the currency union proved less encouraging, this was not enough to dent the Euro last night.

A similarly solid performance from the corresponding German industrial production data could see the single currency extend its gains further.

US Dollar (USD) Slips as US Trade Deficit Hits 14-Year High

The US Dollar (USD) stumbled last night as USD investors waited for developments on new stimulus for the US economy and August’s US trade balance showed a wider deficit than anticipated.

Investors were disappointed to find that the trade deficit had swollen from $-63.4 billion to $-67.1 billion on the month, pushing the deficit to its highest level since 2006. As the increase was largely due to a jump in import levels, this stoked fresh anxiety over the relative strength of the US economy, limiting support for USD exchange rates.

Growing anticipation ahead of tonight’s release of the Federal Open Market Committee meeting minutes may drive further weakness for the US Dollar.

Canadian Dollar (CAD) Softens on Wider-Than-Forecast Deficit

The Canadian Dollar (CAD) faltered thanks to a disappointing set of August trade data, which showed a wider deficit than forecast.

As July’s deficit was revised higher, this left investors with limited confidence in the strength of the Canadian trade landscape, even as oil prices staged a day of gains. The Canadian Dollar struggled despite oil prices gaining through the day, with limited market risk appetite preventing CAD gains.

However, with forecasts pointing towards another strong month for the Ivey PMI, the mood towards the Canadian Dollar may well improve tonight.

New Zealand Dollar (NZD) Holds Footing Ahead of Business Confidence Index

The New Zealand Dollar (NZD) held onto a stronger footing against many of the majors yesterday thanks to a lack of fresh domestic data.

Although the upside potential of NZD exchange rates still looks limited due to the dovish bias of the Reserve Bank of New Zealand (RBNZ), this failed to keep the ‘Kiwi’ under pressure. With the US Dollar stumbling in response to poor US trade data, the appeal of the New Zealand Dollar picked up overnight.

An improvement in the third quarter NZIER business confidence index may see NZD exchange rates gain further ground.

Data Releases

09:00 NZD NZIER Business Confidence Index (Q3) -60%
17:00 EUR Germany Industrial Production (Aug) 1.5%
18:30 GBP Halifax House Price Index (Sep) 0.8%
01:00 CAD Ivey PMI (Sep) 68
05:00 USD Federal Open Market Committee Meeting Minutes

Louisa Heath