Risk Aversion Prevents Commodity Currencies (AUD, NZD) from Gaining Ground on Bearish Pound (GBP) Today
While the Pound (GBP) remains weak on the back of the UK’s PMI underperformances, both the GBP/AUD and GBP/NZD exchange rates are on an uptrend today on declining risk appetite.
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‘Aussie’ (AUD) on Strong Downtrend after Australian GDP Disappointment and Return of Fed Rate Hike Speculation
It has not been a particularly strong week for the Pound (GBP) as domestic economic data proved to be a significant disappointment to traders. The UK’s Manufacturing, Construction and Services PMIs all clocked in at lower levels than had been forecast, starkly contrasting recent comments from Bank of England (BoE) Governor Mark Carney. Speaking at the Jackson Hole symposium over the weekend, Carney had suggested that the domestic economy was currently in a robust state and remained insulated from the worse effects of the slowdown in China. A muted reaction to the words proved appropriate, particularly as the most substantial shortfall came from the Services sector on Thursday, which forms the largest component of the UK GDP.
Things have been a little more mixed, by and large, for the ‘Aussie’ (AUD) as an atmosphere of risk aversion returned to trading on Tuesday with a poor Chinese Manufacturing PMI. With commodity prices slumping yet again and demand from Australia’s primary export destination set to decrease, the GBP/AUD exchange rate soon saw itself trending back towards its recent highs. Although a neutral Reserve Bank of Australia (RBA) Rate Decision, where interest rates were held at 2%, was overshadowed, the same was not true for the domestic GDP data released on Wednesday. Dropping further than expected for the second quarter, UK GDP clocked in at 2% compared to 2.5% on the previous.
As July Retail Sales for Australia contracted both the local Trade Balance and Services PMI posted some improvement yesterday. Although the GBP/AUD pairing did falter by slumping to 2.1642 during Thursday afternoon, it was not long before ‘Aussie’ ceded back its gains in spite of its still-soft rival. No doubt the bearishness of the antipodean currency can be linked to a resurgence of trader speculation regarding any upcoming Fed interest rate hike, as some relatively strong US data reignited the debate to reduce risk sentiment further. Ahead of Friday’s crucial US Change in Non-Farm Payrolls and Unemployment Rate data, the GBP/AUD pairing is benefiting from cautious trading, currently trending around 2.1808.
Rally on Rising Dairy Price Short-Lived for the ‘Kiwi’ (NZD) as Trader Sentiment Remains Cautious
Monday’s NBNZ Business Confidence index for August posted a substantial decline, falling from -15.3 to -29.1 to boost the GBP/NZD exchange rate to 2.4068. It was apparent that recent events in China that have impacted the global stock markets have had a decided effect on the outlook and confidence of New Zealand’s businesses. This figure kicked off a relatively dovish week of trading for the ‘Kiwi’ (NZD); although both the domestic Import and Export Prices for the second quarter later proved to be decidedly more hawkish, the South Pacific currency was hampered by the increasing risk aversion of investors.
In spite of pessimism from industry experts, the week’s GlobalDairyTrade auction the value of milk solids improved for the second consecutive session with the margin edging higher from the twelve-year-low to which the commodity had slumped in August. However, this was at least partly attributable to a reduced volume of product offered for sale by Fonterra, and concerns remain over a wider excess of supply within the industry. With the threat of contractions and production cuts still looming large, the ’Kiwi’ seems likely to experience further dovishness as this temporary boost in appeal wears off.
Much like its near neighbour, the South Pacific currency remains sensitive to developments in the US as today’s Change in Non-Farm Payrolls offers potential clarification on the potential for a September interest rate hike from the Fed. Thus, at time of writing, the GBP/NZD exchange rate is trending at 2.3926.