Australia posts largest trade surplus on record

China is still on holiday, so the overnight markets were a little less liquid than normal.

However, there were some interesting and somewhat mixed data from Australia to keep things lively. The Reserve Bank of Australia left its base rate on hold at 0.1% and maintained its asset purchase rate at 4 billion Australian dollars a week, which they will do until February 2022. Aussie retail sales posted the expected minus 1.7% but the trade balance was a big surprise. A surplus of AUD 15.8 billion is the largest on records that go back to the early 1970s. Rising commodity prices, rising demand for Australia’s raw materials, and a depressed domestic economy forcing down imports are all contributing factors.

Nevertheless, the GBPAUD rate has shifted higher. This has more to do with Sterling recovering some dignity after a few poor days. GBPAUD is up to AUD 1.8720 and has been a tad higher overnight. That’s nearly 1% up from the low we saw yesterday but still a couple of cents below the September highs.

GBP bounces – a little

Sterling had a better day against almost every other currency yesterday as traders stopped thrashing the poor Pound. You could cite any number of reasons for the cessation of hostilities against Sterling; army drivers delivering fuel, a more assertive UK government tone on resolving the Northern Ireland /EU questions, or improving British covid data, all are candidates. There will also be an element of profit-taking by opportunist investors after a lot of downward pressure on the Pound. Certainly, the worst September UK car sales in 23 years won’t have helped GBP.

USD traders paused for employment report

GBPUSD bucked the GBP strength trend. This pair is flatlining around $1.3620 and is just above $1.3600 as I write. USD traders are doing a ‘rabbit in headlight’ impression as they await Friday’s US employment report. The numbers themselves are less important (unless you are an American without a job of course), it’s the impact they might have on the US Federal Reserve’s bond-buying and interest rate decisions that will influence the markets. We get an element of that data in today’s ISM non-manufacturing employment index and the rest of the day is awash with purchasing managers indices from not just the US but also the EU and UK.

We will also see the trade balance for the US and Canada today. The US one always looks like a disaster to me. A monthly deficit of $70 billion-plus ought to be a concern but the US drags in so much investment money, it kind of counterbalances it.

Canada’s trade surplus is expected to be a more modest CAD 430 million or thereabouts. However, like Australia, Canada exports heaps of raw materials, which are most elevated in price right now. So don’t be surprised if these forecasts are a little too conservative. If so, the GBPCAD rate, which is at a lowly CAD 1.7150 this morning, may head lower. Great if you are a CAD seller but… well you know the score.

The GBPEUR exchange rate, having bounced back into the uptrend it was in from Feb 2021 until last week, looks set to make further gains. At €1.1730, it is still short of the August highs of €1.18 but it looks like it may test that high again.

GBPNZD will be lively overnight tonight. This pair is trending higher but finding it difficult to break NZD 1.96. If the global dairy prices index, due for release tonight, is stronger than expected, this rate will probably be back down to NZD 1.95 before we know it but a poor showing on this significant sector for the NZ economy will see NZD 1.96 tested and perhaps broken.

Have a fab Tuesday.

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