Australian Dollar
Caution returned to the markets yesterday, with the day’s muted currency performances pointing towards a lower volume of global trades than had been seen at any point since the UK’s referendum result was announced. This saw the Australian Dollar slump, helped lower by weak domestic data that showed softer-than-expected private sector credit growth. Malcolm Turnbull referenced the ‘Brexit’ in his election campaigning, stating that it showed the need for strong and stable leadership. He was no doubt pouncing on the fact that the latest polls had showed the UK’s shock decision had edged him ahead in the polls after weeks of stalemate with the opposition.
If the markets remain in ‘wait-and-see’ mode today, this morning’s AiG Performance of Manufacturing Index for June could move the ‘Aussie’. The previous score is 51, just above the neutral level which separates growth from contraction; should today’s figure show a weakening then the Australian Dollar is likely to fall.
Sterling
The Australian Dollar weakened against Pound Sterling yesterday, although the UK currency was by no means in a position of strength overall. Markets awaited the late-afternoon speech from Bank of England (BoE) Governor Mark Carney, expecting reassurance on Threadneedle Street’s ability to ensure market stability, as well as looking for hints of future monetary policy changes. Boris Johnson caused a ‘Boris Bounce’ for the Pound after his shock announcement that he wouldn’t enter the Tory leadership contest to become Prime Minister. Market relief was short-lived, however, as Carney’s eventual speech contained a warning that more easing was on the way. He also joined the growing throng of global policymakers cautioning that central bank policy had its limits.
The UK’s Markit manufacturing PMI for June is set for release later today. While domestic data has seen its impact significantly muted by the ‘Brexit’ fallout, the fact that the previous reading was barely above contraction territory could see this PMI watched quite closely. If the manufacturing sector entered contraction before the announcement of a ‘Brexit’, this bodes badly for the future of UK manufacturing going forward.
Euro
The Euro was mixed yesterday as strong data struggled with generally languorous market sentiment. German unemployment showed a stronger drop in joblessness than had been expected, with the number of people out of work falling -6,000 instead of -5,000, while unemployment remained at 6.1%. Eurozone consumer prices also grew more-than-anticipated, with the non-core index entering inflationary territory again after minor deflation in May. Weighing on the common currency, however, were comments from the International Monetary Fund (IMF), urging Portugal’s government to ramp up austerity measures in the wake of the UK’s ‘Brexit’ decision.
Eurozone PMIs are set for release today. Whether the market is in a mood to pay them any attention remains to be seen.
US Dollar
Lacklustre trading kept the US Dollar weak yesterday, although it seemed that the commodity currencies suffered more from the thin trading volumes. The ‘Buck’ therefore saw strong appreciation verses the Australian Dollar and Canadian Dollar, as well as against the weakened Pound.
The biggest risk to market stability today is likely to be China’s manufacturing PMI for June, due for release this morning. Huge volatility was triggered at the beginning of the year after data showed a weakening of the Chinese manufacturing sector, suggesting a weakening of the economy. Fears of a ‘hard landing’ caused a rout in stocks which ultimately wiped trillions of US Dollars from the global equity markets. With market nerves already on a knife edge due to the uncertainty surrounding the ‘Brexit’, a weak printing from today’s Chinese data could tip traders back into hysteria again. This may not strengthen the US Dollar, despite its status as a safe-haven asset, as the prospect of tighter US monetary policy is still strongly linked to there being a healthy global economy.
Canadian Dollar
Oil was back on the decline yesterday, weakening the Canadian Dollar. Brent approached the end of trading with losses of -1.6%, while WTI was down -1.9%. Losses were curbed somewhat by a stronger-than-expected gross domestic product figure, which showed growth had accelerated past the forecast 1.4% mark, rising from 1.2% to 1.5% year-on-year in April.
There is no Canadian data set for release today.
New Zealand Dollar
The New Zealand Dollar was bullish yesterday, despite the overall weak state of market trading. While building permits figures showed a small decline in May, the ANZ Activity Outlook posted a strong rise, climbing from 30.4 to 35.1 and the NBNZ Business Confidence index rose from 11.3 to 20.2, a six-month high. The New Zealand economy thrives on immigration, so the ‘Kiwi’ likely also received a boost from the fact that ‘Brexit’-fearing Britons were scoping out the country in larger numbers than usual. New Zealand’s immigration website saw average site visits from UK residents climb from 2,000 to 5,500.
There is no data from New Zealand set for release today, but as mentioned above, the suggestion of a manufacturing slowdown in China would cause significant market volatility. As a high-risk asset, the ‘Kiwi’ would see mass investor desertion.
Data Released
July 1st 09.30 AUD AiG Performance of Manufacturing Index (JUN)
July 1st 11.00 CNY Manufacturing PMI (JUN) 50.1
July 1st 18.30 GBP Markit UK PMI Manufacturing s.a. (JUN) 50.1
July 1st 19.00 EUR Eurozone Unemployment Rate (MAY) 10.1