Major Trade Partner Currency Trend For August 2020
A boost to sentiment was from the postponement of the US-China trade deal review - which left the deal intact muted by uncertainty, ahead of a week that includes Federal Reserve minutes and the Democrats’ nomination convention.
The US Federal Reserve’s programmes have pushed risk assets to all-time highs and reduced demand for safe-havens, even as economic data has painted a bleak picture of the US recovery.
The US dollar saw some demand earlier however, the positive mood quickly faded after several US Federal Reserve members indicated additional policy easing.
Their meeting minutes released showed Fed officials noted that there had been an increase in uncertainty about the economic outlook since their prior meeting in mid-June.
The Democratic and Republican leaders hinted that they were looking for a path toward reviving stalled negotiations on the next round of pandemic relief.
Any accord was still likely to wait until September despite the fact that the US economy is limping along with many businesses still struggling and millions of Americans out of work.
On Wall Street, equities ended in a positive territory with the tech-savvy Nasdaq finishing at a record high while the Dow Jones Industrial Average rose 0.17 per cent, and the S&P 500 rose 0.32 per cent.
Sentiment for the US Dollar has improved somewhat due to supportive data on business activity and home sales.
There were still concerns that additional monetary easing may be necessary to keep their economic growth on track.
August ended with the US dollar taking a hit after data showed US consumer confidence tumbled to the lowest in more than six years due to concern about the coronavirus-induced job losses.
The fall back in confidence followed the expiration of a $600 weekly unemployment benefit supplement on July 31, and a flare-up in new coronavirus infections across the country, which forced some jurisdictions to shut down businesses again or pause reopenings.
The US dollar continued to stumble near its lowest level with investors betting the US central bank will introduce a new policy framework to fight persistently low inflation.
Further economic data released - new orders for key US-made capital goods increased in July.
The pace slowed from June’s robust gain, suggesting the rebound in business investment would be gradual amid uncertainty about the course of the COVID-19 pandemic.
The Fed’s new monetary policy strategy, unveiled at the start of an annual central banking conference, pledged to aim for two per cent inflation on average.
Powell’s remarks on achieving full employment, one of the Fed’s dual mandates, came as new data suggested the labor market recovery was stalling as the COVID-19 pandemic drags on and financial aid from the government dries up.
Australian Dollar
Australia’s retailers are facing a consumption drought as the country’s second biggest state locks down to fight the coronavirus.
Data showed sales volumes suffered their biggest plunge in two decades.
Their retail sales adjusted for inflation slipped 3.4 per cent in the June quarter suggesting consumer spending to be a drag on GDP growth.
Also, separate data showed their trade surplus swelled to A$8.2 billion in June, taking the total for the
second quarter to a whopping A$23.4 billion.
The Reserve Bank of Australia held its official interest rates steady at a record low of 0.25 per cent.
Their governor Philip Lowe said Australia’s economy was experiencing its biggest contraction since the 1930s. The RBA is now forecasting economic activity to decline by 6 per cent over 2020.
Meanwhile, the Aussie dollar, which tends to rise when risk sentiment improves, was last up 0.47 per cent against the U.S. dollar.
The RBA has also warned that the jobs market will take longer to recover.
They have revised up the unemployment rate to a peak of 10 per cent in December 2020 with the Australian economy to contract by 6 per cent this year.
A measure of Australian business conditions rose in July as the service sector rebounded from a national lockdown.
A weekly survey of consumer confidence from ANZ showed sentiment had slipped for a seventh straight week as the latest lockdown took a heavy toll on Victorians.
Its main index fell 2.4 per cent to its lowest since late April, though it was still above the record low hit that month.
A measure of Australian consumer sentiment fell sharply in August as a strict coronavirus lockdown in Victoria State darkened the mood in a major setback to the country’s fledgling economic recovery.
The Westpac Institute index of consumer sentiment sank 9.5 per cent in August from July, when it dropped 6.1 per cent.
The retreat almost took the index back to its lowest in April when the whole nation was in lockdown.
The official wage price index rose 0.2 per cent in the three months to end June, while analysts had forecast a subdued pace of 0.3 per cent.
The wage growth slowed to 1.8 per cent, well below the levels that used to be considered standard for the country.
The Australian Bureau of Statistics released a positive jobs report for July with more than 114,000 jobs added in July against the expected 40,000 while July’s unemployment rate of 7.5 per cent also beat expectations.
Australia’s central bank called on all levels of government to “put all shoulders to the wheel” to fund the spending desperately needed to generate jobs and drag the economy out of its deepest recession in about a century.
Having slashed its cash rate to a record low 0.25 per cent, and implemented a bond buying programme in mid-March.
Reserve Bank of Australia Governor Philip Lowe said there were limits to what monetary policy could do.
Minutes of RBA’s August policy meeting showed it does not see a need to further ease policy for now, as its package of measures were working
“broadly as expected” with an economic recovery underway in most of the country
Uncertainty about the health situation and the future path of the economy was continuing to affect the spending plans of many Australian households and businesses.
Australian stocks dropped 1.04 per cent due to concern that ties with China will worsen further after a report that Australian regulators will reject acquisitions by a Chinese company. Retail sales rose again in July with gains in all states and territories except Victoria.
Their estimated retail sales rose to A$30.75 billion up a robust 12.2 per cent on the same month last year.
This saw a bit of boost to Aussie demand, however, didn’t take long for the market to digest the fresh release.
Australian employment fell by one per cent over the month to August 8, with the south eastern state of Victoria that was grappling with a fresh wave of coronavirus infections suffering a further blow.
Their second quarter Private Capital Expenditure reported a drop in spending and there are expectations it could fall by as much as 40 per cent.
New Zealand Dollar
New Zealand’s unemployment rate unexpectedly fell in the second quarter and the headline jobless rate fell to 4.0 per cent from 4.2 percent in the last quarter against forecast of 5.8 per cent.
However, New Zealand’s government has warned that it may not be able to save thousands of jobs that will be lost in the coming months as government support such as the wage subsidy scheme ends next month.
The Reserve Bank of New Zealand held its official cash rate at 0.25 per cent in a widely expected decision, and expanded its large scale asset purchase programme to as much as NZ$100 billion.
The battle against the virus also continues with New Zealand’s central bank considering more monetary stimulus if there are periods of resurgence in local coronavirus infections and renewed lockdowns in the country.
Among the most heavily traded currencies, the Kiwi made slow progress as New Zealand’s largest city remains under lockdown and anticipation of future monetary easing weighs on the currency.
Japanese Yen
The month has also been a bad one for the Japanese yen, which was headed for its biggest weekly drop against the US dollar in two months as a jump in U.S. yields has attracted flows from Japan.
Japan suffered its biggest economic contraction on record in the second quarter as the COVID-19 pandemic crushed business and consumer spending, keeping policymakers under pressure for bolder action to prevent the recession deepening.
Japanese GDP shrank an annual
ised 27.8 per cent in April-June, marking the biggest decline since comparable data became available in 1980.
Also, Japan’s official data on exports fell 19.2 per cent in July from a year earlier, beating economists’ forecast of 21 per cent decrease, while the country’s core machinery orders fell 7.6 per cent in June from the previous month.
Euro
The Euro zone’s recovery from its deepest economic downturn on record hit the brakes in August, particularly in services, as pent-up demand unleashed by the easing of coronavirus lockdowns dwindled.
To contain the spread of the virus, which has infected over 22.5 million people globally, governments imposed strict lockdowns forcing businesses to close and citizens to stay home, bringing economic activity to a near halt.
After many of those restrictions were relaxed, activity in the euro zone expanded in July at the fastest pace since mid-2018.
But as infection rates have risen again in parts of the region, some earlier curbs have been reinstated.
So in data likely to concern policymakers and diminish hopes for a Vshaped recovery, IHS Markit’s flash Composite Purchasing Managers’ Index sank to 51.6 from July’s final reading of 54.9.
Germany and France, the bloc’s two biggest economies, also lost economic momentum this month, driven by the services slowdown.
Growth in the euro zone’s dominant service sector stalled, with that PMI plummeting to 50.1 from 54.7, below all forecasts in the Reuters poll which predicted a small dip to 54.5.
European Union leaders agreed last month a 750 billion euro pandemic recovery fund but the relief won’t kick in until next year.
For its part, the European Central Bank is expected to keep monetary policy ultra-loose for a long time.
Apart from those economies, activity in the bloc decreased marginally in August.
Great Britia Pounds
In Britain, the recovery from the shock of the COVID-19 pandemic quickened again in August.
British retail sales surged past prepandemic levels in July, the first full month shops selling non-essential goods were open since the country went into lockdown in March, although economists fear the retail recovery may not last.
British Pounds still has to grapple with ongoing Brexit negotiations between Britain and the European Union, which are far from reaching a consensus.
Public debt also rose above 2 trillion pounds ($2.65 trillion) for the first time last month as the coronavirus pandemic prompted the government to ramp up public spending.