Australian dollar tumbles as US, Canada fail to reach trade deal
The Australian dollar tumbled more than 1 per cent, falling to its lowest level in 20 months, as the US and Canada ended their trade talks without a deal. The currency pared some of its losses after the US said talks would resume with Canada next week.
Also hurting sentiment for the Aussie was the prospect of the Trump administration escalating its trade war with China as early as next week and Friday weakness in base metals, in particular copper, in London.
At 4.15pm in New York on Friday (6.15am AEST Saturday), the Aussie was 1 per cent lower at US71.90¢, paring losses that took it as low as US71.76¢. The currency has now retreated 7.5 per cent against the greenback this year, reflecting in part the continual, gradual lifting of interest rates in the US and the Reserve Bank of Australia's holding pattern.
The local currency has had a rough winter; it was trading above US74¢ earlier in August and above US75¢ in early July.
Data over the week ahead could help limit further downside risk for the currency, in particular second-quarter GDP on Wednesday.
"The headline result is expected to reveal another quarter of reasonable growth and the broad consensus is that activity will continue to improve over the next few quarters," wrote NAB economist Kaixin Owyong in a week ahead note.
"Beyond the headline figure, what will be worth watching out for is any sign that the quality of growth is changing – particularly if consumption slows," Ms Owyong also said. "If there are material signs of softness – the RBA will, of course, take note of these increased downside risks to their outlook."
Beyond the GDP data, there's a raft of reports. On Monday, there's retail sales for July, AiG's August manufacturing index, MI inflation for August and ANZ job ads for August. On Tuesday, the RBA holds a policy meeting and governor Philip Lowe is set to speak at a board dinner meeting in Perth. On Wednesday, there's GDP and AiG's services index before July trade balance data on Thursday and on Friday, AiG performance of construction for July and housing finance for July.
Of course the Aussie is also taking direction from the US dollar, which climbed for a second straight session on Friday trade in the US. The greenback is on track to end the month of August on a positive note, up about 0.6 per cent amid trade tensions. It has advanced in four of the last five months, gaining nearly 9 per cent in that period.
"The trade-positive news in the beginning of the week with the US-Mexico deal has turned, and has become trade-negative," said Alfonso Esparza, currency strategist at OANDA in Toronto. "Now we're seeing resistance on the Canada front with respect to NAFTA. Negotiations have concluded, but nothing has been decided so there's a little bit of uncertainty. That has created a risk-averse environment, which has benefited the [US] dollar."
The White House informed Congress that it plans to sign a trade deal with Mexico and that Canada could opt in later. Talks between the US and Canada are expected to resume mid next week.
Trump separately said on Friday that Canada had taken advantage of the United States on trade. "I love Canada, but they've taken advantage of our country for many years," Trump said during a speech in North Carolina.
Concerns about a NAFTA deal with Canada grew early Friday after Canadian Foreign Minister Chrystia Freeland said that Canada is looking for a "good deal, not just any deal". But Trump said any trade deal with Canada would be "totally on our terms", confirming an earlier report from the Toronto Star. Trump's remarks ignited more dollar buying.
In late afternoon trading on Friday in New York, the dollar index was up 0.4 per cent at 95.106.
The Canadian dollar fell 0.7 per cent versus the US dollar at 76.49 US cents.
The greenback had rallied late on Thursday in a safe-haven move after Bloomberg News reported that Trump wanted to move ahead on a plan to impose tariffs on Chinese imports worth $US200 billion next week.
The euro was also hit by Trump's comments saying that the European Union's proposal to eliminate auto tariffs was "not good enough". Investors were fearful about Europe's outlook as Trump has threatened to impose tariffs on cars assembled by German auto makers. The single currency was last down 0.6 per cent at $US1.1601, after losing about 0.3 per cent overnight, pressured by a rise in Italian government bond yields.
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