US Dollar Drops as Fiscal Stimulus Talks Cancelled

Australian Dollar (AUD) Pushes Higher despite RBA Dovishness

The Australian Dollar (AUD) gained ground on Wednesday even as the Reserve Bank of Australia (RBA) released its latest chart pack.

While the charts showed a sense of anxiety over the outlook of the global economy and Australia’s trading partners, this failed to weigh AUD exchange rates down. The potential for further Australian Dollar losses proved limited as markets have already largely priced in the prospect of a November policy move from the RBA.

Even so, the ‘Aussie’ remains vulnerable to any deterioration in market risk appetite in the days ahead.

Pound (GBP) Trends Lower on Covid-19 Restriction Fears

The Pound (GBP) lacked support during yesterday’s session as fears increased over new coronavirus restrictions while the infection rate surges in the UK, with regional leaders highlighting they believe local lockdowns are failing.

Meanwhile, Brexit uncertainty persisted without news of any solid developments, leaving the Pound without a strong directional bias.

Anticipation ahead of Friday’s raft of UK trade and gross domestic product data could limit the potential for a Pound recovery in the near term.

Euro (EUR) Struggles on Surprise Decline in German Industrial Production

The Euro (EUR) came under fresh selling pressure after August’s German industrial production figure delivered a surprise decline.

Investors were caught off guard by the revelation that production had dropped -0.2% on the month, defying forecasts of a 1.5% increase. This suggests that the Eurozone’s powerhouse economy is struggling to hold onto its earlier recovery momentum, fuelling fears that renewed weakness could be on the cards in the final months of the year.

A narrowing of the German trade surplus could see the single currency shedding further ground this afternoon. Additionally, the fluctuating strength of the US Dollar will also likely drive Euro movement.

US Dollar (USD) Fluctuates as US Fiscal Package Talks Halted

The US Dollar (USD) fell out of favour in response to Donald Trump’s shock decision to pull the plug on talks over a prospective fiscal stimulus package, later recovering some losses as the White House hinted at some piecemeal stimulus.

The move cast a shadow over the economic outlook, with a number of sources warning that growth could stagnate in the absence of fresh fiscal support. This decision also stoked political tensions in anticipation of November’s presidential election, adding to volatility in the US Dollar last night.

However, if the latest set of initial and continuing jobless claims figures point towards an improvement in the US labour market, this may offer USD exchange rates some support.

Canadian Dollar (CAD) Remains Positive Thanks to Solid PMI

The Canadian Dollar (CAD) held onto a positive footing against many of the majors even as the Ivey PMI underperformed.

September’s PMI fell significantly short of forecast, falling to 54.3 rather than strengthening to 68 as markets had anticipated. Nevertheless, this still signalled growth for the Canadian economy even as it raised questions of a possible loss of economic momentum.

A weaker month of housing starts could fuel speculation of a softening construction sector, exposing the Canadian Dollar to additional selling pressure.

New Zealand Dollar (NZD) Muted in Absence of Domestic Developments

The New Zealand Dollar (NZD) struggled to find much upside potential yesterday even in the face of a weaker US Dollar.

With market risk sentiment cautious, NZD failed to find traction, as investors found little incentive to favour the New Zealand Dollar in the absence of any major domestic developments.

Any major shift in market sentiment could easily provoke volatility for the ‘Kiwi’ in the days ahead, though.

Data Releases

17:00 EUR Germany Balance of Trade (Aug) €17.4 billion
23:15 CAD Housing Starts (Sep) 240,000
23:30 USD Initial Jobless Claims (03/Oct) 820,000

Louisa Heath

louisa.heath@torfx.com


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