Daily Currency Update

Get access to our expert daily market analyses and discover how your currency has been tracking with our exchange rate tools.

May fails to excite markets. Attempt number two today.

By Hamish Muress

Theresa May spoke in front of Parliament yesterday in an event watched by many but failed to excite anyone watching or the currency markets. Sterling jumped as much as an ECG measuring the heartbeat of a lifeless Brexit as May told the House of Commons that there had been a lot of inaccurate information about the weekend’s negotiations and that real progress had been made regarding Northern Ireland. A lot of rhetoric but not a lot of substance hence the muted reaction from sterling.

However, it’s not all misery and woe for Brexit as Theresa May meets her cabinet today to drum up more support for her Brexit Chequers plan. The latest reports are that no resignations are imminent and after today’s cabinet meeting eyes will shift to Europe for the EU Summit.

Yesterday the President was asked about the disappearance of Washington Post journalist Jamal Khashoggi indicating that he believed ‘rogue killers’ may have played a part in proceedings. Tensions are currently very high between the US and Saudi Arabia which is alarming given that Saudi Arabia has long been an ally of America in the Middle East as well as one of the world’s largest oil producers. Crown Prince Mohammed bin Salman has certainly established a very assertive government and the government has stated that they will respond with vigour if any sanctions are put in place.

The US Treasury’s report on currency manipulation is set to be released this week but the date is TBC and could cause waves amongst the commodity currencies.

So it has been confirmed that Italy has finally submitted its budget to the European Commission for 2019. We can all now breathe a sigh of relief and put this saga behind us. Wait, I just remembered this is only the beginning and the ramifications are likely to escalate and in all likelihood turn ugly. The European Commission is likely to reject the draft proposal and the next risk event for Italy and the Euro comes from global credit rating agencies S&P and Moody’s both of which are set to re-evaluate the status of the country’s sovereign debt. Currently this debt sits two grades above junk and it’s unlikely given Italy’s current form that the agencies will be upgrading these outlooks. But what does this mean to the Euro? Well to reiterate, Italy is hugely important to the EU. Not only is it the 2nd largest manufacturer on the continent (behind Germany) it also contributes 12% of the populations and 12% of the EU’s GDP. Unlike Greece, Italy plays a major role.

The Aussie dollar suffered once again yesterday and only lies around 1% off its yearly lows that we saw recently. The Reserve Bank of Australia is in no rush whatsoever to raise its interest rates and the latest minutes show the central bank holds the view that a weaker currency is likely helping economic growth. The next move in rates is likely northwards but there is ‘no strong case’ for a hike in the short term. In the meantime, the Aussie dollar will be linked to the performance of the Chinese Yuan.

The Bank of Canada’s outlook for businesses for Q3 was broadly very bullish and should be supportive for the Canadian dollar. The report shows that businesses are optimistic of future sales prospects, indeed there was a big jump here from 6% to 15% and demand from foreign customers was up. Interestingly as well this report was collected prior to the USMCA trade deal so it should be onwards and upwards for Canadian businesses from here.

The Kiwi found itself in the green late yesterday as it surged off the back of the latest inflation figures which beat expectations. This is good news for the Kiwi as there was always a small prospect that the next action from the central bank could be a cut however these inflation numbers will shorten these chances.