Australian Dollar Strengthens on Manufacturing Surprise
July’s manufacturing PMI delivered a positive surprise, strengthening from 49.4 to 51.3 as the sector returned to a state of expansion. This naturally offered a boost to the Australian Dollar, suggesting that the economy got off to a stronger start in the third quarter. Investors also took encouragement from an improved Chinese manufacturing PMI, with the world’s second largest economy showing signs of recovering its lost momentum.
A solid rebound in the second quarter Australian retail sales data may offer AUD exchange rates an additional boost ahead of the weekend.
Weak Manufacturing and BoE Warning Drive Pound Softness
Although the UK manufacturing PMI bettered forecasts to hold steady at 48.0 this was not enough to shore up the Pound. With the manufacturing sector still in a state of contraction, maintaining its worst level of growth in six-and-a-half years, the economy looks set for another weak quarter of growth. GBP exchange rates also slumped in the wake of the Bank of England’s (BoE) August policy announcement, which contained the warning that the UK faces a one in three chance of a Brexit recession.
If the UK construction PMI also remains in a weak state the mood towards the Pound could sour further tonight.
Lacklustre Eurozone Data Limits Euro Appeal
Confirmation that the Eurozone manufacturing sector continued to struggle in July left the Euro with limited support overnight. A downward revision to the French manufacturing PMI exacerbated worries over the health of the economic outlook, with a manufacturing sector slowdown likely to drag on the gross domestic product. With the likelihood of European Central Bank (ECB) monetary loosening continuing to increase demand for the single currency weakened.
Even so, a steady month of growth in Eurozone retail sales could offer the Euro some support this evening.
Less Dovish Fed Boosts USD Exchange Rates
While July’s ISM manufacturing index missed the mark, showing a slight slowdown on the month, this was not enough to weigh down the US Dollar last night. USD exchange rates remained on a generally positive footing thanks to the Federal Reserve’s less dovish policy announcement. Even though interest rates saw a 25bpt cut Fed Chair Jerome Powell indicated that this move was not the start of a loosening cycle. With the Fed now looking less likely to cut rates again the US Dollar found renewed strength.
Evidence that the US labour market continued to tighten in July may encourage further USD exchange rate gains tonight.
Improved Manufacturing Performance Fails to Benefit Canadian Dollar
Although the Canadian manufacturing sector managed to edge back into positive territory last month this was not enough to shore up CAD exchange rates. With the sector only showing minimal expansion of 50.2 markets still see cause for concern over the relative strength of the economic outlook. As oil prices slumped dramatically overnight this left the commodity-correlated Canadian Dollar on the back foot.
Unless the oil market finds support this could keep CAD exchange rates biased to the downside in the short term.
New Zealand Dollar Shrugs off Fed Decision
While the Federal Reserve proved less dovish than anticipated the New Zealand Dollar was still able to make gains against many of the majors yesterday. In the absence of any fresh domestic data NZD exchange rates were able to recover some of the losses sustained over the course of the week, even though the domestic outlook remains bearish.
If market risk appetite falters once again, though, the New Zealand Dollar looks vulnerable to another round of selling.
Data Releases
August 2nd 11:30 AUD Retail Sales ex Inflation (QoQ) (2Q) 0.3%
August 2nd 18:30 GBP Construction PMI (JUL) 46.0
August 2nd 19:00 EUR Eurozone Retail Sales (YoY) (JUN) 1.3%
August 2nd 22:30 USD Change in Non-Farm Payrolls (JUL) 169,000