Australian Dollar Slumps as Interest Rates Hit Record Low

RBA Interest Rate Cut Drives Australian Dollar Sell off

As the Reserve Bank of Australia (RBA) delivered on recent hints and cut interest rates to a fresh record low of 0.75% this left the Australian Dollar on the back foot. Although the move was widely anticipated the announcement still weighed heavily on AUD exchange rates as markets expect to see further monetary loosening. While Governor Philip Lowe suggested that the economy is now at a turning point this was not a hawkish enough signal to offer the Australian Dollar any boost.

Once markets have priced in the odds of potential future interest rate cuts, though, AUD exchange rates could recover some of their lost ground.

Irish Border Anxiety Drags on Pound

While the UK manufacturing PMI saw an improvement on the month this still signalled another month of lost momentum for the sector. With the PMI remaining firmly below the neutral baseline of 50 investors remain concerned by the possibility of another negative quarter of economic growth. The leak of supposed government plans for the Irish border also put pressure on GBP exchange rates, with the risk of a hard border appearing to increase.

With September’s construction PMI also looking set to deliver a weak reading the potential for a Pound recovery seems limited today.

Euro Trends Lower as Eurozone Manufacturing PMI Hits 7-Year Low

Confidence in the health of the Eurozone economy continued to fade as September’s Eurozone manufacturing PMI dipped to 45.7. This took the index to its lowest level since October 2012, highlighting a persistent slowdown within the manufacturing sector in the face of global trade tensions and dragging on the Euro. As the German manufacturing PMI also remained in contraction territory investors were inclined to brace against the possibility of the Eurozone’s powerhouse economy entering a technical recession.

Ahead of tomorrow’s finalised Eurozone services PMIs the single currency may struggle to find any particular rallying point.

US Dollar Shakes off Signs of Deepening Manufacturing Slowdown

Rather than rebounding as forecast the ISM manufacturing PMI weakened further in September, sliding from 49.1 to 47.8. This decline pushed the index to its lowest level since June 2009, suggesting that ongoing trade tensions are dragging on the US economy. As the Markit manufacturing PMI painted a more positive picture, however, the US Dollar was able to hold onto a generally solid footing.

If the latest ADP employment change figure shows any evidence of a weakening US jobs market this could drag USD exchange rates lower.

Positive Manufacturing PMI Shores up Canadian Dollar

An unexpectedly solid showing from the Canadian manufacturing PMI helped to shore up CAD exchange rates overnight. As the index picked up from 49.1 to 51 the manufacturing sector demonstrated greater signs of resilience, in spite of lingering global trade tensions. Even so, with market risk appetite still limited in the wake of the WTO’s slashed global trade growth forecasts the potential for Canadian Dollar gains proved muted.

Unless US crude oil inventories show a decline on the week CAD exchange rates look set to face further selling pressure.

Weakening Global Outlook Weighs on New Zealand Dollar

The mood towards the New Zealand dollar remained bearish yesterday in the absence of any fresh domestic data. As concerns over the strength of New Zealand’s economic outlook linger NZD exchange rates look set to remain biased to the downside. Without the support of market risk appetite the New Zealand dollar could struggle to gain any particular traction in the near future.

As long as signs continue to point towards a global economic slowdown NZD exchange rates are likely to remain on the back foot.

Data Releases

October 2nd 18:30 GBP Construction PMI (SEP) 45
October 2nd 22:15 USD ADP Employment Change (SEP) 140,000

Louisa Heath