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Exchange4free Global Forex Report (06/06/2018)

USD

Trade tensions are back in the spotlight as President Donald Trump moves away from multilateral trade agreements with Canada and Mexico, and focuses on individual trade agreements with each of those countries.

Trade tensions increased as Mexico outlined plans to impose tariffs on agriculture and steel products, in response to Trump’s tariffs on steel and aluminium. The uncertainty surrounding the trade tensions and possible NAFTA (North-American Free Trade Agreement) exit, has caused volatility in the US Dollar over the past few days.

The Dollar was unable to capitalize on better-than expected ISM service sector survey data and positive PMI data, for traders and investors had their focus on trade tensions and upcoming Summit between President Trump and North-Korean President, Kim Jong-un. Investors, traders and analysts will keep a close eye on the outcome of the Summit as well as growing trade tensions, which can influence the Dollar negatively. Currently the EUR/USD currency pair is trading around 1.17435 compared to 1.17019 from last week.

EUR

During Tuesday’s session the Euro slipped against its major rivals after Italian prime Minister, Guiseppe Conte, unveiled the new coalition government’s agenda in an address to the Senate, ahead of the confidence vote that it was expected to win.

Conte explained to the Senate that Italy’s debt, which is nearly 130% of GDP, is fully sustainable, but the state will have to reduce it by growing the economy. He further explained that fiscal policy and public spending must be aimed at sustainable growth. The thought behind this is that the government hoped to increase growth, with increased spending, but it does not coincide with the rules set out by the European Union. Many fear that an Italian clash with Brussels would lead to a greater anti-Euro sentiment in Italy and further harm the Euro. Currently the EUR/USD pair is trading around 1.17435 compared to 1.17019 from last week.

GBP

IHS Markit services PMI was released in the UK earlier this week which came in at 54.0, up from 52.8 in April and far ahead of the expectational reading of 52.9. The result shows an increase in activity within the economy and the consensus is for Q2/2018 GDP figures to follow. These positive figures should be able to convince the Bank of England to raise interest rates in August.

Analysts and investors warn that positive economic data, will not keep the Sterling on a high, as the market tends to shift its focus to other subjects, in this case Brexit. Analysts say that the scope for the Sterling to Rebound in the short-term is likely to remain capped by unfavourable Brexit developments in the month ahead. Currently the GBP/EUR currency pair is trading around 1.14245.

AUD

The Australian Dollar dropped lower during Tuesday’s session as the Reserve Bank of Australia (RBA) held its interest rate steady at the current record low, causing low inflation and weak household earning growth. The RBA is watching and waiting for any signs of wage pressure in the market, which they hope will drive higher consumer spending and support inflation levels of above 2%. Analyst comment that they do not see the interest rates changing anytime soon and that if inflation and consumer spending does not change soon, the Australian Dollar might keep falling. The interest rate statement came hard on the heels of data showing Australian retail sales rising faster than expected.

Looking forward, GDP data for the region will be out on Wednesday and analysts believe that the retail sales may cause the GDP data to surprise on the upside. Currently the AUD/USD 0.764995 compared to 0.75921 last week.

CHF

Swiss inflation climbed to 1% for the first time in more than 7 years in May 2018, cementing the return to price stability of the past year. Analysts say that the rise in inflation was powered by soaring oil prices and more expensive imports. Average consumer prices for imported products were 2.7% higher than a year ago, while domestic products were 0.4% higher.

The return of inflation reverses the trend seen for most of the period between 2011 and 2016. Over the past year the Swiss Franc has weakened considerably against the Euro, but political turbulence in Italy, has pushed the Swiss Franc higher over past weeks. Analysts and investors hope that the upward trend in the Franc continues.

ZAR

Yesterday, the Rand weakened on the back of disappointing GDP data and weakened by 1.7% against the US Dollar by yesterday’s close. The data revealed that the South African economy contracted by 2.2% q/q which was worse than forecast of 0.5%, its worst in nine years.

According to Statistics SA the largest contributors to the contraction included mining which fell by 9.9%, manufacturing which fell by 6.4% and construction which fell by 1.9%.

The broad market consensus is that increased taxes and fuel prices will continue to affect the consumption driven economy while economic growth is expected to increase towards the end of the year with improved global conditions.

NGN

The Central Bank of Nigeria (CBN) reviewed the Naira rate on Monday and within hours we saw it appreciate. Local Bureau de Change operators will now be purchasing NGN from the CBN at 357 against the US Dollar and selling NGN at 360. Local Bureau de Change operators are now purchasing naira at the same rate as the banks from the CBN. The acting Director of Corporate Communications at the CBN, Mr Isaac Okorafor, stated that this decision was made in order to converge the interbank rates for local Bureau de Change operators and other authorised foreign exchange dealers to allow for equal competition.

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