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US Dollar still flavour of the month...

Published: Wednesday 05 September 2018

  • Australian Dollar falls further
  • Strong service sector boosts Sterling - for how long?
​​By Ricky Nelson

The US Dollar resumed its uptrend overnight after slightly better than expected manufacturing data. Despite the escalating trade war, US manufacturing has emerged unscathed, as it was reported to be growing at its fastest pace for 14 years. The US economy continues to grow, corporate profits are higher, inflation seems fairly benign and the unemployment rate is trending lower. There could be some headwinds ahead, however, particularly next year when the tax cut stimulus begins to fade, but for the time being the Federal Reserve will remain on track to continue tightening, perhaps twice more before the end of the year. In this environment, the US Dollar should continue to remain in vogue.
Australian Dollar falls further
The Australian Dollar continues to slide after the Reserve Bank of Australia (RBA) left interest rates on hold at their latest meeting. It’s unlikely that rates will rise over the next 12 months while there is still slack in the labour market, house prices are edging lower and inflation is still at the lower end of the RBA’s 2-3% target. The Australian Dollar was boosted somewhat after an upbeat Gross Domestic product (GDP) release. Growth was reported at 3.4%, fuelled by consumer spending financed by household savings. The general interest rate outlook remains the same, however, so expect the Australian Dollar to continue weakening in the near term.
Strong service sector boosts Sterling - for how long?
Sterling was in a holding pattern while waiting for the Service Sector Purchasing Managers' Index (PMI) data this morning, key economic indicators for the UK, as the sector accounts for over 75% of UK GDP. Markets were pleasantly surprised when a better than anticipated result of 54.3 was posted this morning, up from last month's 53.5 and above the expected reading of 53.9, and this good news pushed the Pound higher. There were weaker manufacturing and construction data releases for the UK earlier this week, but the service sector seems to remain robust.  The Pound is being driven more by politics rather than economics at the moment, so any volatility will probably be short lived. Perhaps of more importance to the market will be the future of Bank of England (BoE) Governor, Mark Carney, who is in talks to extend his stay in the role. If he decides to stay on for an additional year, it is likely that Sterling will rally, as he is seen as a safe pair of hands in these uncertain times.
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Today's Major Economic Releases

Market BST Data/Event Previous Forecast
EUR 09:00 EU: Final Services Purchasing Managers' Index 54.4 54.4
GBP 09:30 UK: Services Purchasing Managers' Index 53.5 53.9
EUR 10:00 EU: Retail Sales 0.3% -0.1%
CAD 13:30 Canada: Trade Balance -0.6b -1.1b
CAD 13:30 Canada: Labor Productivity -0.4% 0.5%
USD 13:30 US: Trade Balance -46.3b -50.2b
CAD 15:00 Bank of Canada Overnight Rate 1.50% 1.50%
CAD 15:00 Bank of Canada Rate Statement    

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news