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Exchange4Free Global Forex Report (08/08/2018)

USD

The US Dollar has been struggling to post gains against most of its major counterparts during Tuesday’s session, posting losses against the Euro, Swiss Franc and Australian Dollar. Analyst attribute dollar weakness to political uncertainty in the US.

Traders have been cautious when it comes to the US Dollar, especially surrounding rising trade tension between the US and China. A full blown trade war between the US and other countries will have a global effect on currencies and economies, in particular those of emerging markets. Furthermore, analysts are keeping an eye on the Federal Reserve, as they are speculating to hike interest rates again in the near future. A rise in interest rates will have a negative impact on emerging markets and their currencies around the world.

The Dollar weakness can also be prescribed to softer than expected US jobs data released last week, where nonfarm payrolls increased by 157,000 in July, below the expected 190,000. Although US unemployment fell to 3.9%, average hourly earning increased by the same percentage as last month, which in relative terms means that people are earning less. Analysts and traders will be looking for signs from the Fed and trade tensions as to where the US dollar is heading this week. Currently the EUR/USD currency pair is trading around 1.1614, down almost 0.55% from last week, but up 0.43% from Monday.

EUR

The Euro rebounded during Tuesday’s session, despite weaker than expected economic data from Germany. On Monday, Industrial output declined by 4%, 3.5% more than the expected decline of 0.5%. The Eurozone usually relies on Germany to drive the economic engine and with the European Central Bank’s decision to terminate their bond purchase program in December, the weaker than expected German data is an ominous sign for the Eurozone.

On the other hand, Germany did report a better than expected trade surplus, which was driven by an uptick in exports. The weaker Euro has helped Germany become slightly more competitive, which lead to a trade surplus of 21.8 billion Euros, compared to a trade surplus of 19.7 billion Euros in May. The Euro has shown some strength against most major currencies over the past few days and analysts believe that this is due to global political uncertainty caused by Brexit and rising trade tensions between the U.S and China. Germany is also jumping on the bandwagon, as they are planning to implement protectionism in the country as well, which could either hurt or help the Euro. Currently the EUR/USD currency pair is trading around 1.1614, down almost 0.55% from last week, but up 0.43% from Monday.

GBP

During Tuesday’s session, the Sterling has dropped against the Euro and was left trading around 1.118, its lowest level in almost two weeks. Analysts say that the reason for the drop in the Sterling is mainly due to uncertainty surrounding Brexit. Traders are worried that the UK might be facing an economic turbulent “no-deal” Brexit, which could have undesirable outcomes for the already struggling Sterling.

Most recently, UK police chiefs have warned that a hard Brexit could jeopardise public safety, as it would limit access to EU-wide databases and security powers. With UK institutions and agencies warning against a bad Brexit, it has put even more pressure on Brexit negotiators to secure a favorable separation package. Looking to the week ahead, the UK will be releasing GDP estimates on Friday and analysts say that should the prove better than the forecasts or even in line with expectations, the Sterling could experience a boost. Currently the GBP/EUR is trading around 1.1127, down 0.47% from Tuesday.

AUD

The Australian Dollar remained stable during Tuesday’s session as the Australian central bank held a policy meeting against the background of rising US trade tensions and unease over global growth. The AUD/USD currency pair was left trading around 0.7390 at close of Tuesday’s session. The Reserve Bank of Australia (RBA) held its policy meeting on Tuesday and analysts expect interest rates to stay around 1.5%.

With analysts and speculators awaiting the RBA’s post meeting statements, the focus shifts to global factors. In particular, analysts will be focussing on the US-China trade wars, as it could cause further damage to Australia’s key commodity prices. With rising trade tensions, copper has fallen more than 15% since hitting a high in June. Seculators and analyst will be keeping an eye on the US and China, as they will play a big role in the direction of the Australian dollar. Currently the AUD/USD currency pair is trading around 0.74145.

CHF

This morning the Swiss Franc posted gains against both the Pound and US dollar. The dollar declined 0.08% against the CHF to trade at 0.9945 earlier in the day.

Last week saw the release of Switzerland’s manufacturing PMI which surprisingly rose to a level of 61.9 in July 2018, up from 61.6 in June 2018. Market expectations predicted a decline to a level of 60.9. 
In addition to the above, retail sales climbed 0.3% year-on-year in June 2018. This is the third consecutive month of an increase in retail sales. Overall the Franc performed better on the day and has continued gains into this week.

ZAR

The South African Rand gained more than 1% during Tuesday's session, reversing the losses from the previous session. Analysts say that the reason for the reversal was due to the dollar rally paused and investors looking for alternatives to the Turkish Lira.

Investors returned to South Africa after the Turkish Lira fell to a 10 year low on Monday, after the US announce they will review Turkey's duty free access. The Rand gained over 1.13% against the dollar and was seen trading around 13.2875.

The Rand’s new found strength was also partially due positive manufacturing output data in South Africa. However, economists and analysts warn that rising trade tensions and fears of a full-blown trade war will impact emerging market currencies heavily. South Africa might weather the storm a bit better than other emerging countries, but it will have a negative impact nonetheless. Trade wars along with the uncertainty surrounding land expropriation without compensation is cause for worry and uncertainty for the South-African Rand. Currently the USD/ZAR pair is trading around 13.3178, up almost 0.23% from yesterday.

NGN

The World Bank will be investing $4.5 billion in Nigeria through to 2021. The World Bank’s vice president for Africa, Hafez Ghanem, stated that they are looking at targeting the power sector and social protection developments and expects $2.5 billion to be pumped in towards these developments within the next 18 months. The World Bank is currently funding around 30 projects in Nigeria and has already invested around $10 billion.

The Naira has remained stable against majors at the parallel market trading at N358, N478 and N419 against the US dollar, British pound and euro, respectively. There is, however, speculation of higher interest rate in the US. This is a risk for the Naira as it would drive demand away from emerging markets.

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