Australian Dollar
Domestic data may have been weak, but strong reports from China kept the Australian Dollar in positive territory yesterday. The AiG Performance of Manufacturing Index for August crashed from 56.4 to 46.9, while figures showed an accelerated -5.4% decline in private capital expenditure for the second-quarter and no growth at all for retail sales in July. Despite all this, a surprise move into growth territory for the Chinese manufacturing PMI buoyed investor sentiment. The index climbed from 49.9 to 50.4 despite no change being forecast. The health of the Chinese manufacturing sector is vital for Australian exports, so industry growth is a relief for economists.
There is no Australian data set for release today, but with key US data on the calendar it is likely that the Australian Dollar will still see significant movement.
Sterling
AUD/GBP exchange rates saw a marked decline yesterday as the Pound advanced bullishly verses its peers. The catalyst for the rise was the latest Markit manufacturing PMI for August, which showed that the sector had more-than shaken off the initial shock of the Brexit referendum results. After crashing to 48.3 during July, August’s figure clocked in at 53.3, over four points higher than the forecast reading and a ten-month high. The bullish performance by the sector has called into question the need for further interest rate cuts, improving sentiment towards the Pound even further.
The Markit/CIPS construction PMI for August is due for publication today. Given the above-forecast nature of yesterday’s manufacturing index, the current consensus for a rise from 45.9 to 46.5 could prove too pessimistic.
Euro
Below-forecast Eurozone PMIs softened the Euro yesterday and kept the focus firmly on the European Central Bank (ECB) to provide further stimulus measures in the near-term. The finalised reports showed an unexpected contraction in the Italian sector and a worsening decline in French manufacturing. The overall Eurozone PMI saw an unexpected ten basis point dip. Only the Greek PMI yielded an upside surprise, climbing into growth territory with a score of 50.4.
Only low-impact releases appear in the Eurozone data docket today; finalised Italian GDP figures will be followed by Eurozone producer price index data for July. With the focus firmly on inflation, the latest PPI reports could have a greater impact on the common currency than usual.
US Dollar
The US Dollar had started the day trending strongly, with investors buoyed by recovering interest rate hike bets after the initial disappointment of the Jackson Hole Symposium. The latest key ISM manufacturing data ensured that bets regarding monetary tightening would continue to yoyo, however. Forecast to slip slightly from 52.6 to 52, the index instead shocked markets by dropping into contraction territory, clocking in at 49.4. Continuing jobless claims also increased. The US Dollar understandably weakened after the data was published.
Markets are eagerly awaiting today’s non-farm payrolls report and the unemployment rate. Positive figures here will boost market bets of an interest rate hike in December, repairing the damage done by yesterday’s manufacturing contraction figures and sending the US Dollar on a bullish charge.
Canadian Dollar
Domestic data was unsupportive yesterday, pressuring the Canadian Dollar lower. The RBC manufacturing PMI weakened further than expected, slipping from 51.9 to 51.1, against forecasts of a drop to 51.5. The crude oil markets were also creating headwinds for the ‘Loonie’, with both WTI and Brent falling by around -1.5% towards three-week lows. On a more positive note – and helping to control losses – as the result of trade talks between Canada and China, domestic firms signed 56 deals with a combined worth of more than CA$1.2 billion.
Canada’s international merchandise trade figure for July is expected to show a shrinking deficit, although the predicted shortfall of -CA$3.2 billion remains close to a recent record high, so is unlikely to greatly improve sentiment towards the Canadian Dollar.
New Zealand Dollar
The day’s only New Zealand data was negative yesterday, although the ‘Kiwi’ managed to make advances thanks to the weakness of the US Dollar. The second-quarter terms of trade index fell further than expected, weakening -2.1% instead of the -1.5% economists had forecast. Terms of trade measures a country’s purchasing power by comparing the price of its exports to that of its imports. A fall shows that New Zealand firms are having to spend more money importing goods than they’re making from exporting them. The fall has been motivated by a decline in diary prices and a rise in oil prices.
Only the second-quarter value of all buildings report is due for New Zealand tomorrow, but like the ‘Aussie’ it is likely the ‘Kiwi’ will see volatile trading on the back of the latest US data.
Data Released
September 2nd 08.45 NZD Value of All Buildings (QoQ) s.a. (2Q) 2.0%
September 2nd 18.30 GBP Markit/CIPS UK Construction PMI (AUG) 46.5
September 2nd 19.00 EUR Eurozone Producer Price Index (YoY) (JUL) -2.9%
September 2nd 22.30 CAD International Merchandise Trade (Canadian dollar) (JUL) -3.20b
September 2nd 22.30 USD Change in Non-Farm Payrolls (AUG) 180k
September 2nd 22.30 USD Unemployment Rate (AUG) 4.8%