?Brexit? Speculation Still Rife; AUD, NZD, CAD Strong on Risk-Appetite

Published: 4 Jul at 1 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China, Italy, Japan,

Pound Sterling
The Pound is gradually weakening after the latest construction sector PMI showed a significant decline in industry activity in the run-up to the UK’s ‘Brexit’ vote. While a weakening had been expected, economists weren’t expecting the sector to contract; the PMI dropped down to 46. This suggests that the UK’s construction industry will be battling referendum fallout from a more extreme position of weakness than first thought. The result has also raised fears that tomorrow’s services PMI could register a similarly bearish performance.

Euro
A mixture of safe-haven demand and an unfolding crisis for the Italian banking industry is weighing on the Euro today. Italian Prime Minister Mariano Renzi has threatened to violate EU regulations by providing a publicly-funded bailout to Italy’s struggling banks. Several of Italy’s leading banks are likely to fail upcoming stress tests, which could reveal that they are seriously under-capitalised. Collectively, the industry is struggling with over €200 million in insolvent debts. EU regulations specify that creditors, rather than the public, should foot the bill for banking sector bailouts. With no help forthcoming, however, Renzi may have no choice, which could see Italy leave or ejected from the European Union.

US Dollar
The US Dollar is mixed today, with risk demand softening the ‘Greenback’. At the same time, safe-haven assets are an attractive prospect for investors today, due to the expectations of widespread monetary stimulus. The UK, Japan and China are all likely to increase monetary easing, which has seen the ‘Buck’ appreciate, with gold prices also being driven higher on the prospect of weakening global currencies. Collapsing hopes of an interest rate hike from the Federal Reserve, however, has curbed the US Dollar’s advance.

Australian Dollar
The Australian Dollar is currently bullish, despite an inconclusive result from Saturday’s ‘double-dissolution’ elections. Additional votes are still being counted, so the final result will not be known until tomorrow. While economists have warned that political uncertainty is threatening the economy, credit ratings agencies have downplayed the idea that Australia’s AAA credit rating is under threat. Expectations of a rate freeze at tomorrow’s Reserve Bank of Australia (RBA) policy meeting are also helping the Australian Dollar strengthen.

New Zealand Dollar
Risk-appetite is fuelling a bullish rise for the New Zealand Dollar today. The ‘Kiwi’ has been further boosted by a report from the Treasury detailing the limited impact of a ‘Brexit’ upon the New Zealand economy. Short-term impact is unlikely to be significant, the report finds, as the adverse impact upon investment and trade from the current financial market volatility will be temporary. The report does, however, highlight the potential for longer-term impacts, including increased pressure on New Zealand’s already high levels of immigration.

Canadian Dollar
Crude oil is on the rise today, continuing the recent uptrend which has brought Brent above US$50 per barrel, while WTI has edged above US$49. The Canadian Dollar is strong against safer assets, although it is being outperformed by its commodity peers - the Australian and New Zealand Dollars. In positive domestic news, a key economic trends index has shown showed its largest gain this year on the back of strengthening commodity prices. The MacDonald-Laurier Institute Leading Indicator rose 0.4% during May, representing the biggest monthly gains since October.

As of Monday, 4th July 2016, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1917, GBP USD exchange rate was 1.3284, GBP AUD exchange rate was 1.7631, GBP NZD exchange rate was 1.839, GBP CAD exchange rate was 1.7075, GBP CNY exchange rate was 8.8543, and GBP JPY exchange rate was 136.2251.

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