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Australian Dollar edges toward weekly high

03 November 2016 by News Desk

Australian Dollar was impacted as demand for risk-correlated currencies faded amid jitters towards the US Presidential election in global markets.

Australian DollarAustralian Dollar moved little on Thursday despite Australia’s October services index score from AiG improving from 48.9 to 50.5, according to currency specialists TorFX

Australia’s trade deficit also lightened more than expected to A$1,227m.

Ultimately however, distaste for riskier investments this close to next week’s election prevented the Australian Dollar from benefiting from these scores, allowing Sterling to advance.

New Zealand Dollar (NZD) – The Pound to New Zealand Dollar exchange rate plunged for most of Wednesday’s session, extending declines that began on Tuesday thanks to a surprising uptick in prices and demand for New Zealand’s most lucrative commodity, dairy.

Following that, Wednesday’s Q3 New Zealand employment results came in well above expectations, pushing the ‘Kiwi’s bullishness further despite a considerable drop in demand for risk.

The unemployment rate improved from 5.1% to 4.9% despite an increase in participation, with a strong yearly employment change of 6.1%. This helped keep GBP/NZD at its lowest levels on record.

However, while this softened Reserve Bank of New Zealand (RBNZ) rate cut bets, there is still a high chance of a rate cut next week. This, as well as US election jitters, is likely to allow Sterling to make a strong recovery in the coming days.

Australian Dollar edges toward weekly high

Pound Sterling (GBP) – The Pound recovered again slightly on Wednesday after plunging on Tuesday, thanks to various factors such as higher bets for a Bank of England (BoE) interest rate freeze and an impressive UK Construction result from Markit.

Investors were hopeful that the BoE would leave monetary policy alone due to strong domestic ecostats, despite previous speculation that further stimulus could be delivered as soon as November.

October’s Construction PMI improved from 52.3 to 52.6, beating expectations of a slip to 51.8 and impressing UK investors as it indicated the construction sector would do a better job of supporting Q4 growth.

Sterling also advanced as investors grew hopeful about a ruling due on Thursday morning, when the UK’s High Court would decide the legality of the government’s activation of Article 50 and whether or not other MPs will have a say.

While the Pound benefitted slightly from news that Markit’s October Services PMI had also beaten expectations, improving from 52.6 to 54.5, most of Thursday’s GBP movement was caused by a High Court decision that Article 50 could not be activated by the Government alone, and that it must be voted in by Parliament. While this decision can still be challenged, the possibility of a vote or delay in the proceedings left the Pound bullish on Thursday morning.

US Dollar (USD) – The Pound to US Dollar exchange rate made solid gains on Wednesday as the US Dollar continued to be sold off on fears of a status quo shakeup from Presidential nominee Donald Trump.

As US Presidential election jitters worsen with only 5 days until the key election date, ‘Cable’ advanced to a three week high. Investors looked to store their assets in safer investments in the event of a Trump win, which could cause considerable market volatility.

Wednesday evening’s Federal Open Market Committee (FOMC) decision was even overshadowed by Presidential concerns. The bank left rates on hold at 0.25%, as expected, but took a vaguely hawkish tone, adding to bets of a December rate hike. Despite this, the US Dollar continued to trend weakly on Thursday as Presidential jitters dominated trade.

Euro (EUR) – The Pound to Euro exchange rate trended largely flatly on Wednesday before advancing in the evening and continuing this uptrend first thing on Thursday morning as investors readjusted their positions ahead of Thursday’s key High Court decision on Article 50 and Bank of England (BoE) interest rate decision.

The Euro was able to hold its ground against the Pound for most of the day thanks to better-than-expected ecostats and weakness in the US Dollar. USD EUR is the world’s most-traded exchange rate, making the Euro a strong first point of call for USD selloffs.

Eurozone ecostats published throughout the day included a surprisingly strong German employment result for October. Unemployment fell by -13k and the key unemployment rate unexpectedly improved from 6.1% to 6.0%, giving Germany its lowest rate of unemployment since the German reunification in 1990.

Markit’s final October Manufacturing stat for the Eurozone also impressed. While Germany’s score slipped from 55.1 to 55.0, Spain and France’s scores beat expectations, bringing the Eurozone’s overall October manufacturing score up from 53.3 to 53.5.

Canadian Dollar (CAD) – The Pound to Canadian Dollar exchange rate continued edging higher on Wednesday, and by Thursday morning the pair was trending at its best levels in over three weeks.

Lower demand for riskier investments ahead of next week’s US Presidential election, as well as poor price movement in oil, damaged the risky ‘Loonie’ on Wednesday. A record-breaking increase in US oil stocks at 14.4 million barrels caused prices of Canada’s biggest commodity export to plunge. Hopes that OPEC’s oil output cap deal would have a lasting upward effect on oil prices edged lower as a result.

Disclaimer: This update is provided by TorFX, a leading foreign exchange broker, its content is authorised for reuse by affiliates.

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