Surprise Australian Manufacturing Contraction Drives AUD Losses
An unexpectedly weak Australian manufacturing PMI left AUD exchange rates under pressure at the start of the week, in spite of signs of a thawing in US-China trade tensions. Falling from 52.7 to 49.4 in June, the index demonstrated a marked decline in manufacturing sector activity. This raised fresh concerns over the outlook of the domestic economy, especially as the Chinese manufacturing data also remained in a state of contraction.
Fresh signs of dovishness at today’s Reserve Bank of Australia (RBA) policy announcement could see the Australian Dollar shedding further ground against its rivals.
Pound Slides after UK Manufacturing Hits Six-Year Low
Confidence in the Pound took a fresh blow last night after June’s UK manufacturing PMI slipped further into contraction territory. As the index clocked in at 48 rather than 49.5 this saw GBP exchange rates trending lower across the board, driven by renewed worries over the economic outlook. With Brexit-based uncertainty weighing heavily on manufacturing sector growth at the end of the second quarter the odds of a solid gross domestic product reading appear limited, to the detriment of GBP exchange rates.
Another disappointing reading from the corresponding construction PMI may see the Pound fall further out of favour.
Euro Falters as Eurozone Manufacturing PMIs Show Further Decline
The Eurozone economy continued to show signs of weakness yesterday as June’s raft of manufacturing PMIs painted a discouraging picture. With the manufacturing sector in decline for a fifth consecutive month investors were concerned by the prospect of economic momentum fading further. However, a surprise improvement in the Eurozone unemployment rate for May soon saw the single currency picking up once again.
A weaker month of German retail sales data could see EUR exchange rates stumble this afternoon, though, as the risk of an economic slowdown remains.
Hopes of US-China Trade Progress Bolster US Dollar
Although the US manufacturing sector showed lacklustre growth in the last month this still encouraged the US Dollar to recover ground at the start of the week. USD exchange rates also benefitted from a sense of optimism surrounding the future of US-China trade relations, following the apparent breakthrough at the G20 summit. While the risk of the latest round of trade talks stalling remains this was not enough to weigh down the US Dollar at this stage.
Comments from Federal Reserve policymakers are likely to limit the upside potential of USD exchange rates in the near term, however.
Canadian Dollar Benefits from Oil Price Boost
Bullishness in the oil market helped to shore up the Canadian Dollar overnight as Brent crude continued to trend comfortably above US$65 per barrel. With the OPEC-led production-limiting agreement looking set to see another six month extension investors piled back into oil, betting that prices will remain on an uptrend for longer. This helped to keep CAD exchange rates on a positive footing, in spite of the latest signs of a weakening Chinese economy.
Any improvement in June’s Canadian manufacturing PMI could encourage additional Canadian Dollar gains tonight.
Weak Chinese Manufacturing Weighs on New Zealand Dollar
Even though hopes of a breakthrough in US-China trade relations picked up this was not enough to boost the New Zealand Dollar yesterday. Instead, NZD exchange rates came under pressure as a result of the underwhelming Chinese manufacturing PMI. With the world’s second largest economy continuing to show signs of a slowdown the appeal of the risk-sensitive New Zealand Dollar naturally diminished.
Without the support of positive New Zealand data NZD exchange rates may struggle to return to a positive footing in the short term.
Data Releases
July 2nd 14:30 AUD Reserve Bank of Australia Rate Decision 54
July 2nd 16:00 EUR German Retail Sales (YoY) (MAY) 2.7%
July 2nd 18:30 GBP Construction PMI (JUN) 49.2
July 2nd 23:30 CAD Manufacturing PMI (JUN) 49.5