Australian Dollar
An unexpected softening in the Chinese manufacturing sector caused the Australian Dollar to weaken yesterday. The ‘Aussie’ was also weighed down by expectations of further policy easing from the Reserve Bank of Australia (RBA) at today’s meeting. After the recent poor inflation data, markets are convinced that the board will cut rates below their already historically low level of 1.75%. Even if the RBA decides to hold rates, markets believe the board will maintain an easing bias, so the ‘Aussie’ may not make a particularly strong recovery should the official cash rate be left at its current level.
The Reserve Bank of Australia’s decision will be announced this afternoon. Trade balance figures are expected earlier on today and have been forecast to show a narrowing of the deficit from -2218 million to -2000 million.
Sterling
Despite continually poor post-Brexit data weakening the outlook for the UK economy, the Australian Dollar slumped versus the Pound yesterday. Sterling was bearish following the publication of the updated manufacturing PMI for July. The earlier ‘flash’ printing of the index showed that the sector had managed to avoid some of the fallout from the Brexit vote, only just slipping into contraction territory with a score of 49.1. However, the finalised figures released yesterday showed that the situation was worse-than-expected, with the actual score clocking in at 48.2. This brought the manufacturing sector’s reaction to the referendum vote more in line with the performance of the services and composite indexes.
Today’s construction sector PMI is forecast to fall from its already weakened state, with the latest Reuters poll suggesting the index will weaken from 46 to 43.8, which would be the sector’s worst score since the middle of 2010.
Euro
The Euro was largely on an uptrend yesterday, although the day’s developments were somewhat mixed. While revised German and Eurozone manufacturing PMIs showed a smaller slowdown in growth than initially estimated, the French and Italian measures still printed poorly. Markets were digesting the results of bank stress tests published on Friday, which showed stronger levels of capitalisation than seen previously, although the overall strength of the banking system remained somewhat in doubt. Also keeping markets uncertain was the announcement that Greece would be relaxing capital controls, allowing account holders to withdraw larger sums of money with fewer restrictions than previously in an attempt to encourage people to deposit their money again.
The only Eurozone data set for release today is the producer price index, forecast to slow on the month while the annual decline eases from -3.9% to -3.4%.
US Dollar
The US Dollar was strong ahead of the release of the latest ISM Manufacturing index, pushed higher by low demand for high-risk currencies. However, the actual release printed below expectations, revealing a greater slowdown in the industry than forecast. Predicted to weaken from 53.2 to 53, the index instead fell to 52.6. Construction spending figures also disappointed, continuing to contract rather than re-entering growth territory. Spending declined -0.6%, down from the previous -0.1% drop.
Personal income and spending figures for June will help to indicate the strength of inflationary pressures in the US, although given current forecasts the picture looks mixed. Income is expected to rise marginally, while personal spending and real personal spending is likely to weaken.
Canadian Dollar
With no data and the weakness in the oil markets continuing, the Canadian Dollar was firmly on the decline yesterday. Oil had made a small recovery over the weekend, but as the close of yesterday’s session neared, WTI was back under US$41 per barrel. Since the drastic weakening in prices last year, the oil markets tend to meet psychological resistance every five US Dollars; falling below US$40 per barrel would be a real setback to the recovery in WTI prices seen since February.
The only Canadian data due for release will arrive towards the end of the day. Forecasts are for a negligible weakening in the RBC Canadian Manufacturing PMI, which currently stands at 51.8.
New Zealand Dollar
There was no domestic data for New Zealand released yesterday. The New Zealand Dollar was weakened by the poor Chinese manufacturing data, but its commodity peers were hit harder. This meant the ‘Kiwi’ managed to make strong gains on the ‘Aussie’ and the ‘Loonie’, as well as trending above opening levels versus the Pound.
Today promises to be a busy day for New Zealand Dollar volatility, with key releases likely to create headwinds for the ‘Kiwi’. First up is the Reserve Bank of New Zealand (RBNZ) 2-Year Inflation Expectation, which will be followed the results of the latest GlobalDairyTrade auction.
Data Released
August 2nd 14.30 AUD Reserve Bank of Australia Rate Decision (AUG 2) 1.50%
August 2nd 18.30 GBP Markit/CIPS UK Construction PMI (JUL) 43.8
August 2nd 19.00 EUR Eurozone Producer Price Index (YoY) (JUN) -3.4%
August 2nd 22.00 NZD Dairy Auction Avg. Winning Price MT (AUG 2)
August 2nd 22.30 USD Personal Consumption Expenditure Core (YoY) (JUN) 1.6%
August 2nd 23.30 CAD RBC Canadian Manufacturing PMI (JUL)