Australian Dollar Falters on Chinese Slowdown Concerns

Australian Dollar Slides on Chinese Manufacturing Decline

AUD exchange rates came under pressure yesterday after the Chinese manufacturing PMI fell from 50.2 to 49.7. With China’s manufacturing sector now in a state of contraction the mood towards the Australian Dollar soured, given the risk-sensitive currency’s status as a market proxy for the Chinese economy. Although December’s finalised Australian construction PMI saw an improvement this was not enough to shore up AUD exchange rates in the face of global growth worries.

Unless market risk appetite picks up the Australian Dollar is likely to remain out of favour today.

UK Manufacturing PMI Fails to Offer Pound Encouragement

While the UK manufacturing PMI bettered forecasts in December by rising from 53.6 to 54.2 this failed to prevent GBP exchange rates trending lower. Even though the headline PMI picked up, driven by the sharpest rise in new orders since February, investors were unimpressed by the data. With business optimism still lacking worries over the Brexit-based uncertainty kept the sector in check, suggesting that economic growth is likely to remain muted in the near future.

An improvement in the corresponding construction PMI could offer the Pound a boost this evening, however.

Slowing Eurozone Economy Weighs on Euro Demand

December’s finalised Eurozone manufacturing PMIs left the Euro on a weaker footing against its rivals, offering confirmation that economic activity eased in the final month of 2018. Even though the Italian manufacturing PMI bettered expectations, improving from 48.6 to 49.2, this was not enough to encourage investors. With the Eurozone economy looking set to come under further pressure in the months ahead there appeared little incentive to favour the single currency.

As long as the US Dollar remains on a bullish footing today the appeal of the Euro is unlikely to materially improve.

US Dollar Shakes Off Signs of Weakening Manufacturing Sector

The US Dollar shrugged off a slight downward revision to the latest US manufacturing PMI, with the index still pointing towards solid monthly growth in the sector. USD exchange rates found support on the back of the latest bout of market risk aversion, buoyed by signs of a slowing Chinese economy. While the global economic slowdown could also have a detrimental impact on the US investors still piled into the US Dollar over the course of the day.

A similar weakening in tonight’s ISM manufacturing index, however, could sour the mood towards the US Dollar.

Canadian Dollar Jumps on Surprise Oil Price Rebound

Although December’s Canadian manufacturing PMI disappointed, easing from 54.9 to 53.6, demand for the Canadian Dollar still picked up overnight. CAD exchange rates surged higher on the back of a sharp increase in oil prices, with Brent crude rising more than 3% during Wednesday’s European session. In spite of Russian and US oil production reaching record levels in recent months the oil market still managed to bounce back from its New Year low, carrying CAD exchange rates higher.

As anticipation mounts for December’s Canadian labour market data, though, the Canadian Dollar may struggle to hold onto this bullishness for long.

Rising Dairy Prices Lend Support to New Zealand Dollar

The latest Global Dairy Trade auction offered support to NZD exchange rates overnight as prices rose 2.8% on the fortnight. With dairy prices continuing to recover from their multi-month run of weakness the New Zealand Dollar found some cause for confidence. Even so, as the general sense of market risk appetite remained muted this limited the upside potential of NZD exchange rates for the time being.

If market sentiment continues to deteriorate this could drag the New Zealand Dollar lower once again.

Data Released

January 3rd 20:30 GBP UK Construction PMI (DEC) 52.9
January 4th 02:00 USD ISM Manufacturing Index (DEC) 57.8

Louisa Heath

louisa.heath@torfx.com


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