Australian Dollar Falters After Chinese Manufacturing Contraction

Chinese Manufacturing Slowdown Dents Australian Dollar

A sharper-than-expected deterioration in the latest Chinese manufacturing PMI left the Australian Dollar on a weaker footing ahead of the weekend. As China’s manufacturing sector continued to contract this dented market confidence, adding weight to worries over the outlook of the global economy. As the fourth quarter Australian producer price index also showed a loss of momentum AUD exchange rates came under increased pressure.

Even so, an uptick in the latest TD securities inflation gauge could offer the Australian Dollar a rallying point this morning.

Weakening UK Manufacturing Sector Drives Pound Losses

Confidence in the underlying health of the UK economy diminished in the wake of January’s UK manufacturing PMI, which slumped from 54.2 to 52.8. As manufacturing output and jobs creation both slowed markedly there are concerns that the sector could soon slip into a state of recession. This underwhelming report spooked investors, driving the Pound lower across the board on Friday as worries over the fast-approaching Brexit deadline persisted.

If the UK construction PMI also disappoints expectations this evening the mood towards the Pound could sour further.

Easing Eurozone Inflation Increases Pressure on Euro

Confirmation that the headline Eurozone consumer price index eased from 1.6% to 1.4% in January limited the appeal of the Euro. With inflationary pressure continuing to fade the case for any European Central Bank (ECB) monetary tightening remains lacking. EUR exchange rates were also weighed down by the continued weakness of the Italian manufacturing PMI, which fell further into a state of contraction at the start of 2019.

However, if the Eurozone producer price index shows an uptick in December this may encourage the Euro to recover some of its lost ground.

Higher US Unemployment Rate Fails to Prevent US Dollar Rally

While the US unemployment rate unexpectedly picked up to 4.0% in January this was not enough to prevent USD exchange rates rallying. As the latest payrolls data proved much stronger than forecast the US Dollar was encouraged to trend higher across the board, even as wage growth showed signs of slipping. A solid performance from the ISM manufacturing index also shored up USD exchange rates, indicating the continued health of the world’s largest economy.

As long as tonight’s factory orders data prints positively the US Dollar is likely to remain on a stronger footing against its rivals.

Manufacturing PMI Supports Canadian Dollar

Even though January’s Canadian manufacturing PMI dipped from 53.6 to 53.0 the mood towards the Canadian Dollar remained positive on Friday. As the manufacturing sector remained in a solid state of growth, in spite of the modest decline in the headline index, the negative impact on CAD exchange rates was minimal. Another day of bullish trading for the oil market also helped to support the Canadian Dollar, meanwhile.

However, any deterioration in oil prices could weigh heavily on CAD exchange rates in the days ahead.

New Zealand Dollar Falters as Consumer Confidence Eases

January’s ANZ consumer confidence index showed a minor decline on the month, prompting NZD exchange rates to weaken. Although the dip was not enough to reverse the previous month’s surge in confidence this still gave investors incentive to sell out of the New Zealand Dollar. With worries over the global growth outlook intensified by the disappointing Chinese manufacturing data NZD exchange rates failed to find much traction ahead of the weekend.

A solid increase in building permits on the month may encourage the New Zealand Dollar to recover its ground this morning, though.

Data Releases

February 4th 08:45 NZD Building Permits (MoM) (DEC) 3%
February 4th 11:00 AUD TD Securities Inflation (YoY) (JAN)
February 4th 20:30 GBP Construction PMI (JAN) 52.5
February 4th 21:00 EUR Eurozone Producer Price Index (YoY) (DEC) 4.1%
February 5th 02:00 USD Factory Orders (MoM) (NOV) 0.2%

Louisa Heath

louisa.heath@torfx.com


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