FX Roundup: Dollar slides as US trade deficit widens, RBA holds firm

The dollar fell against a basket of global currencies on Tuesday, as the US trade deficit widened with exports plummeting to a three-year low on the US currency’s relative strength in recent months.

At 1532 BST, the euro was up 0.53% against the greenback, changing hands at €1.1247, as figures published by the US Commerce Department indicated the trade deficit had jumped 16% month-on-month to $48.3bn in August, higher than the $47.1bn analysts had expected.

Exports declined 2% to $185.1bn, hitting their lowest level in three years, driven lower by a drop in overseas sales of US-produced petroleum and other industrial supplies.

The dollar also fell against the yen by 0.19% to JPY120.23. Concurrently, the pound sterling was up 0.40% against the greenback changing hands at $1.5206, as the Bank of England’s Monetary Policy Committee prepares to meet on Thursday.

Kit Juckes, head of forex at Societe Generale, said, “The UK services PMI was also soft over the previous session and continues to paint a picture of an economy whose growth is strong, but whose growth rate has peaked. We get industrial production data tomorrow and then the MPC meeting Thursday. We're medium-term GBP bears.”

Aside from the pound, the dollar was also trading 0.05% lower against its Canadian counterpart changing hands at CAD$1.3080, testing the USD/CAD 1.30 level.

Other commodities-linked currencies also got respite, as the New Zealand dollar rose 0.12% against the greenback to change hands at US$0.6498, while the Australian dollar rose 0.68% changing hands at US$0.7131, with the Reserve Bank of Australia’s decision to hold interest rates widely factored in by the wider market.

The RBA’s statement noted: “In Australia, the available information suggests that moderate expansion in the economy continues”. That said, the statement did not rule out further policy measures if deemed appropriate.

Jane Foley, senior FX strategist at Rabobank, said, “Given global macroeconomic scenarios, it is likely that price of many commodities will remain depressed for some time and that the RBA will again be pressed into cutting interest rates. We continue to see scope for AUD/USD to edge towards 0.68 on a six month view.