Markets in the past 48 hours have had to digest the new US, Mexico and Canada deal (announced late on Sunday), the ongoing stream of Brexit news from the Conservative Party conference and manufacturing PMI data for September for major economies. The net result is yet another mixed session for the Dollar which is unchanged in trade-weighted terms since yesterday. The EUR/USD cross has continued to tumble and is now at a six-week low. There has been no dramatic news out of the Eurozone but markets are continuously being reminded that Italy remains a weak link, with the 2019 budget and the Italian’s government’s lukewarm commitment to the Eurozone keeping investors on their toes.
Sterling, which at one point yesterday was trading above 1.31 versus the Dollar, has slid back below 1.30. Prime Minister May’s willingness to tweak her proposed Brexit deal in order to get the EU on board gave markets something to cheer about yesterday, with the Conservative leader announcing that the UK could remain in a customs union beyond December 2020 (the end of the transition period). But as often with all things Brexit, markets need more convincing than just a headline. Ultimately there is little political or popular support for Theresa May’s plan, however it is amended and bended, and the EU shows no sign of budging.
The Swiss Franc and Kiwi Dollar have barely budged in this trading session, with markets seemingly ignoring PMI numbers. The Canadian Dollar, which had rallied nicely over the weekend and yesterday on news that the NAFTA was being revived (albeit under a different name), lost steam today with USD/CAD trading sideways. The Australian Dollar lost further ground despite the Reserve Bank of Australia effectively repeating what it has said in recent months: rate hikes are unlikely any time soon. Aussie Dollar bulls may be getting a little tired of the RBA’s neutral rhetoric given that the central banks of Canada, England and Norway have all hiked their policy rates in recent months.
