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Brexit and U.S – China Trade Talks to Keep the Pound and Dollar in Focus

Bob Mason
No updates from Beijing, testing market resolve, with economic data providing yet more disappointment, this morning.

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side this morning, with key stats limited to November trade figures out of Australia.

For the Aussie Dollar, the trade surplus narrowed from A$2.316bn to A$1.925bn in November, narrowing beyond a forecasted A$2.230bn surplus.

According to figures released by the ABS:

  • Exports rose by 1% to A$38.445bn, with a 60% (A$681m) rise in the export of non-monetary gold and a 1% rise (A$57m) rise in the export of services contributing, while a 1% (A$173m) fall in the exports of non-rural goods weighed. The net exports of goods under merchanting held steady at $37m.
  • Imports rose by 2% to A$36.520bn, with a 7% (A$433m) rise in the imports of capital goods and a 9% (A$30m) rise in the imports of non-monetary gold contributing to the rise. The imports of intermediate and other mechandise goods fell by A$22m, with the imports of services also down by A$22m.

The Aussie Dollar moved from $0.71444 to $0.71398 upon release of the figures before easing to $0.7134 at the time of writing, leaving the Aussie Dollar down by 0.20% early on in the day.

Elsewhere, the Japanese Yen was up 0.05% to ¥108.67 against the U.S Dollar, with the Kiwi Dollar down 0.18% to $0.6743, ongoing trade talks between the U.S and China and more disappointing economic data testing market risk appetite early on.

Focus through the day will be on the ongoing trade talks between the U.S and China, which resumed on Monday, a lack of updates on progress from either side likely to test the market’s optimism.

In the equity markets, it was a relatively upbeat start to the day, with the Nikkei (+0.80%), the Hang Seng (+0.26%) and the ASX200 (+0.60%) making ground, while the CSI300 struggled, down 0.11% early on, further gains in the U.S futures following Monday’s positive start to the week in the U.S equity markets providing support.

The Day Ahead:

For the EUR, economic data due out through the morning includes November industrial production figures out of Germany, which are released ahead of the Eurozone’s business confidence numbers. Both sets of figures will provide the EUR with direction, with anything in line with or better than forecasts to be EUR positive.

Outside of the numbers, any updates from the U.S administration or Beijing on the ongoing trade talks between the U.S and China will ultimately be the key driver through the day.

At the time of writing, the EUR down 0.28% to $1.1442, as the Dollar recovers from of Monday’s losses early on.

For the Pound, economic data scheduled for release through the day is limited to December house price figures that are unlikely to be given too much airtime, with market focus remaining on Brexit and the ongoing parliamentary debates on the Brexit deal. As the week progresses, much will depend on whether the British PM can get further assurances from the EU.

There’s also talk of a possible government shut down, U.S style, where MPs have called for an amendment to the Finance Bill, which funds the UK government. The amendment would cut certain areas of government funding in the event of Britain leaving the EU without a deal, the current bill allowing the government to meet unforeseen obligations in the event of a no deal departure.

At the time of writing, the Pound was down by 0.10% to $1.2764, with updates from parliament the key driver through the day.

Across the Pond, economic data is limited to November’s JOLTs job opening figure that will provide some direction for the U.S dollar, forecasts being Dollar positive, though we would expect the Dollar to be less sensitive than normal following the December labour market figures that impressed last Friday.

Outside of the numbers, the ongoing trade talks between the U.S and China and the extended government shut down will also influence, the Dollar currently on the back foot in spite of this morning’s gains, with concerns over the economic outlook and a more dovish FED Chair weighing.

At the time of writing, the Dollar Spot Index was up 0.19% to 95.846.

For the Loonie, economic data scheduled for release is limited to November trade data that will have an impact on the Loonie, as the markets look ahead to tomorrow’s BoC interest rate decision. While forecasts are Loonie negative, gains in crude oil prices through the morning will provide some support, though it may not be enough should today’s figures come in worse than forecasted.

The Loonie was up 0.18% to C$1.3275 against the U.S Dollar at the time of writing.

This article was originally posted on FX Empire