Stronger GDP Fails to Encourage Sustained Australian Dollar Gains
The third quarter Australian gross domestic product strengthened in line with market expectations yesterday, with the headline growth rate clocking in at 1.7%. A surprise upward revision to the second quarter data added to the positive impact of the report, suggesting that the Australian economy is currently in a stronger state of health. However, AUD exchange rates failed to hold onto this positive footing overnight thanks to the latest bout of market jitters over the global trade outlook.
A narrowing of the trade surplus in October may give investors further incentive to sell out of the Australian Dollar this morning.
Revised UK Services PMI Offers Pound Boost
GBP exchange rates remained on a positive trend overnight as the finalised UK services PMI proved stronger than the initial estimate. While the index remained in contraction territory at 49.3 this only represented an eight-month low, as opposed to the forty-month low that the initial reading pointed towards. The Pound also found encouragement as the latest polling data suggested that the Conservatives are maintaining a lead ahead of next week’s general election.
Even so, political developments could still put the Pound on the back foot in the days ahead as markets remain wary of the possibility of another hung parliament.
Euro Under Pressure as Eurozone Growth Worries Linger
November’s set of Eurozone services PMIs saw some modest improvement on their initial estimates, suggesting a greater level of resilience within the sector. However, the Euro struggled to capitalise on the data thanks to lingering worries over trade. With the EU and US still appearing at odds over the possibility of fresh trade tariffs markets still saw little cause for confidence in the economic outlook of the Eurozone.
A slower month of German factory orders could put additional pressure on EUR exchange rates this afternoon as confidence in the health of the Eurozone’s powerhouse economy weakens.
Disappointing ISM Non-Manufacturing Index Dents US Dollar
Support for the US Dollar remained muted last night as the ISM non-manufacturing composite index weakened further than forecast. While the dip from 54.7 to 53.9 was not enough to knock the sector out of a state of solid expansion this slowdown still put pressure on USD exchange rates. With the US economy still appearing on track to lose further momentum before the end of the year the appeal of the US Dollar naturally diminished.
Further weakness may be in store for USD exchange rates tonight unless October’s trade deficit narrows further than anticipated.
Steady BOC Shores up Canadian Dollar
There was little surprise as the Bank of Canada (BOC) opted to leave interest rates on hold at its final policy meeting of 2019. As policymakers maintained the message that the current interest rate level is ‘appropriate’ this encouraged bets that no rate cuts are on the immediate horizon. This gave the Canadian Dollar fresh cause for confidence, even in the face of lingering global trade worries.
However, a widening of the Canadian trade deficit could see CAD exchange rates reversing their gains tonight.
Risk Aversion Limits New Zealand Dollar Appeal
Demand for the New Zealand Dollar remained relatively muted in spite of a solid uptick in the ANZ commodity price index. As market risk appetite weakened in response to increasing doubts over the possibility of an imminent US-China trade agreement, and the risk of a new round of tariffs kicking in, the appeal of the risk-sensitive NZD weakened.
With no fresh domestic data set for release today NZD exchange rates may struggle to find any particular direction.
Data Releases
December 5th 10:30 AUD Trade Balance (OCT) 6.1 billion
December 5th 17:00 EUR German Factory Orders (MoM) (OCT) 0.3%
December 5th 23:30 USD Trade Balance (OCT) -48.7 billion
December 5th 23:30 CAD Trade Balance (OCT) -1.37 billion