Australian Dollar
The Australian Dollar was performing well yesterday, helped by a docket of positive, if low-impact, domestic data. While the latest AiG performance of manufacturing index showed that the industry remained in contraction in September, an increase from 46.9 to 49.8 indicated that the sector was recovering. The TD Securities inflation tracker suggested that consumer price growth doubled on the month from 0.2% to 0.4%, while on the year the pace of inflation accelerated from 1.2% to 1.3%. This supported the forecasts of an interest rate freeze from the Reserve Bank of Australia (RBA).
That decision will take place today. While no action is currently expected from the RBA, markets will be watching to see if new Governor Philip Lowe has had any influence on the overall tone taken by the Bank.
Sterling
The Pound collapsed on Monday, allowing the Australian Dollar to rack up gains of well over 1%, bringing AUD/GBP down to its lowest level in nearly three years. The Sterling rout was sparked by UK Prime Minister, Theresa May, who told the Conservative Party conference that Article 50 would be triggered by the end of Q1 2017 at the latest. The article begins the official withdrawal process from the European Union and would see the beginning of exit negotiations. May stated that the UK would not sacrifice control over immigration, suggesting the government intends to implement a ‘hard’ Brexit, rejecting single market access unless the EU shifts its position on the interdependency of the ‘four freedoms of trade, goods, capital and people. The fact the latest UK manufacturing PMI rose bullishly instead of weakening failed to provide much resistance to the Australian Dollar’s advance.
Markets will be looking ahead to Wednesday’s services PMI. Should it mimic the manufacturing index and advance against forecasts of a decline, the Pound could edge away from its recent lows.
Euro
No signs of a deal between Deutsche Bank and the US Department of Justice (DoJ) weakened the Euro on Monday, despite the prospect having been nothing more than a rumour to begin with. Markets had grown excited by the idea due to the fact that John Cryan, Deutsche Bank’s Chief Executive, has spent the weekend in the US, although he was there to attend an annual International Monetary Fund (IMF) event. A run of positive PMIs failed to particularly fuel the Euro, however, even though the French and Italian measures climbed above forecast.
There is little impactful data on the calendar this week, although with the ongoing saga of Deutsche Bank still unfolding most releases may be overlooked anyway. Retail sales on Thursday could cause some Euro movement.
US Dollar
A strong score from the latest IMS manufacturing PMI helped to strengthen the US Dollar yesterday. The index rose out of contraction, climbing from 49.4 to 51.5, beating forecasts of 50.3. Markets remained concerned that the wobble was indicative of economic weakness, which limited the US Dollar’s recovery. But the ‘Greenback’ also had support from domestic news, with the Republican presidential campaign taking a blow after the release of Donald Trump’s leaked tax returns showed that he made a loss of nearly -US$1 billion in 1995. This was seen to undermine his claims that he is a savvy businessman, potentially damaging his reputation amongst his supporters.
Several key pieces of US data are set for release over the coming days, with the non-farm payrolls on Friday being the most influential.
Canadian Dollar
News from before the weekend, that oil cartel OPEC had agreed to cut production by around 700,000 barrels per day, continued to boost the Canadian Dollar yesterday. While investors had initially been sceptical, oil and the Canadian Dollar climbed on hopes that the deal at least meant OPEC had experienced a change in mind set after months of deliberately over-producing in order to compress prices and force competitors from the market. However, quotas for individual OPEC members won’t be agreed until the cartel’s official November meeting, so uncertainty remains to weaken the Canadian Dollar in the future.
As is usual, the week’s high-profile Canadian data won’t be released until Friday, when the latest employment rate and change in employment statistics will be published.
New Zealand Dollar
With no domestic data to provide support and strong bets of US monetary tightening before the end of the year, the New Zealand Dollar slumped yesterday. While its commodity peers had sources of support to keep them in demand despite weak risk appetite, the ‘Kiwi’ was left rudderless.
Today’s Global Dairy Trade auction could see dairy prices rise for the fifth time in as many events, which would boost the New Zealand Dollar further. A price drop, on the other hand, would undermine the ‘Kiwi’.
Data Released
October 4th NZD Dairy Auction Avg. Winning Price MT (OCT 4)
October 4th 13.30 AUD Reserve Bank of Australia Rate Decision (OCT 4) 1.5%
October 5th 18.30 GBP Markit/CIPS UK Services PMI (SEP) 52
October 6th 18.10 EUR Markit Eurozone Retail PMI (SEP)
October 7th 22.30 USD Change in Non-farm Payrolls (SEP) 173k
October 7th 22.30 CAD Unemployment Rate (SEP) 7.0%