Daily Currency Update
Traders will remember Black Monday for a long time and the repercussions from the extreme slump in global stock markets continued to be felt on Tuesday. While the Pound remains notably higher against currencies like the Australian Dollar and New Zealand Dollar, Sterling has come away from the fresh multi-year highs achieved off the back of the ‘Fall of China’. However, the GBP/USD pair was able to hold above a key technical resistance level as the belief that a September rate adjustment from the Federal Reserve is now off the table kept the ‘Greenback’ under pressure.
The strength afforded to the Euro by traders unwinding carry trades saw the common currency emerge as one of the winners of Black Monday. The Euro was able to drive the Pound to an over three-month low over the course of the European session, although Sterling has since recouped some of its losses. Euro fluctuations also occurred as the European session opened and Germany published mixed domestic data. While final second quarter growth data printed as-expected, Private Consumption, Import levels and German Capital Investment all came in below-forecast. Today’s IFO sentiment gauges for the Eurozone’s largest economy may prompt additional market movement.
With the bloodbath in global stock markets putting the kibosh on a Federal Reserve interest rate hike taking place in September, the US Dollar slipped against the Pound on Monday. While the ‘Greenback’ was performing well against the commodity currencies (which lost out massively as a result of the Black Monday turmoil) the US Dollar may flounder if today’s US Markit Services PMI shows a slowing in output. That being said, the US Consumer Confidence gauge is forecast to show an improvement in sentiment and if such an increase occurs it could keep hopes of a December adjustment alive and lend the world’s premier reserve currency some support.
As investors dramatically pulled out of commodity-driven and higher-risk assets in response to Black Monday, the ‘Aussie’ posted extensive and widespread losses. But the Australian Dollar was able to stage a modest recovery during the local session as China’s Conference Board Leading Index improved from 328.2 to 331.2 in July – a welcome piece of good news from the Asian nation. Gains were a little limited as Australia’s own Conference Board Leading Index showed a -0.2% decline in June.
New Zealand Dollar
China’s improved Conference Board Leading Index and higher domestic inflation expectations in New Zealand helped the New Zealand Dollar claw back some of its recent declines on Tuesday. Expectations for inflation over the next two years advanced from 1.85% to 1.94% – in the midrange of the Reserve Bank of New Zealand’s 1-3% target. The ‘Kiwi’ fell to a fresh 6-year low against the Pound on Monday but the GBP/NZD pairing could head lower if a semblance of calm returns to global stock markets today.
As one of the currencies worst affected by the Black Monday commodity sell-off, the Canadian Dollar hit spectacular new lows against several of its peers. The ‘Loonie’ stumbled to an eight-year low against the Pound and a ten-year low against the US Dollar. As the recent developments have increased the odds of the Bank of Canada (BOC) issuing another rate cut in the near future, the Canadian Dollar is likely to remain on the back foot in the days ahead.
South African Rand
Just when investors began to think the Rand could fall no further Black Monday happened and the South African currency careened to new record lows against the US Dollar and Pound. While today’s South African second quarter growth and June Mining Production numbers may have an influence on the Rand’s performance, the global economic climate will remain the main cause of fluctuations.