Germany and China Stand Against the US Lead Sanctions on Iran
Wednesday 8 August, 2018
Daily Currency UpdateAs the trade war between the USA and China rages, the Greenback appears to be the default currency for investors as risk moves off the table and into safe-haven buying. Trade uncertainty has boosted the US Dollar in the last few months as the US economy is seen as stronger vs. its counter economies. Solidifying this view is the Federal Reserve holding a more hawkish tone where they raise rates to tame possible inflation as other central banks remain in the offensive mode to stoke inflation. The US Dollar Index was a shade down on Tuesday and did momentarily fall just under 95, however, the bulls drove it back and closed the session around 95.19. The Dollar has failed to break string resistance up at the 95.50 level in over a year. Against the majors, EUR/USD buying 1.1597, GBP/USD sits at 1.2868. Global risk events to highlight are the stance the Berlin and Beijing talking heads are taking on the US sanction invoked on Iran. They are encouraging their national companies to remain and do business with Iran. These companies are pulling out not wanting to risk the repercussions of Trump's statement saying any companies that do business with Iran will not do business with the United States.
Key MoversThe loonie slipped yesterday as oil prices dipped through the North American afternoon session. A shortage of US oil inventories this reported later to would help CAD reclaim some lost ground, oil inventories are due at 10:30 am this morning. This morning we had Canadian Building Permits released, which decreased to -2.3%, forecasts were for 1.0% and the previous month was 4.8%. The loonie went under immediate pressure after the release and tested a two-week low against the greenback. Aside from this, it is another quiet day from Canada with Friday's employment figures will be the next major event of note this week.
It’s been a typically quiet August week so far from the Eurozone; however, there is some news emerging from Italy that is catching the market's eye. The recently formed coalition party primarily made up of separatist parties, the League and Five Star Movement are putting together a budget which they aim to implement next year. Finance minister, Giovanni Tria has sought to allay fears that the planned spending increases will not increase debt or lead to an exit of the Eurozone. The positive news has likely brought some very moderate support to the euro; market participants will no doubt be skeptical over the claims given that Italy’s debt to GDP ratio is around 130%.
Sterling continues to suffer on the back of comments over the weekend from International Trade Secretary, Liam Fox who put the chances of the UK exiting the EU without a trade deal at “60-40” in a Sunday Times interview. With little data of note this week until Fridays GDP print, the negative comments continue to haunt the pound. GBP/USD traded at its lowest level since September the 4th yesterday dropping to a low of 1.2853 during the European session. For those heading to the continent for a holiday, the news isn’t much better as GBP/EUR is currently close to a ten-month low presently trading at 1.1135. Sterling bulls will be hoping for the excellent weather and England’s World Cup run mean GDP prints to the upside on Friday; however, a miss will mean another leg lower.
Reserve Bank of Australia, Philip Lowe spoke encouragingly at a business lunch in Sydney overnight about the countries employment prospects stating he expected overall level of unemployment to drop from 5.4% to 5% in the medium term. He also cited the recent uptick in immigration (Australia's population recently rose through the 25m mark) as being supportive for growth moving forward. Despite the confident words little was said about monetary policy or inflation, so the Aussie was relatively unmoved. AUD/USD trades at 0.7394 and AUD/CAD at 0.9672.
Overnight saw quarterly Inflation Expectation numbers from New Zealand hit the target at 2%. Respondents to the survey are business managers who give their expectations for changes in prices for goods/services they use over the next two years. The healthy number buoyed NZD/USD helping it rise from around .6730 to .6760 before retracing a little. Tonight’s big event from NZ is the Reserve Bank of New Zealand’s interest rate decision with no change in policy expected.
- USD/CAD: 1.3030 - 1.3120 ▲
- EUR/USD: 1.1573 - 1.1628 ▼
- GBP/USD: 1.2854 - 1.2960 ▼
- AUD/USD: 0.7383 - 0.7434 ▼
- NZD/USD: 0.6723 - 0.6762 ▲