Lacklustre Manufacturing Activity Limits Australian Dollar Demand

Underwhelming PMIs Weigh Down Australian Dollar

Although October’s manufacturing PMI bettered forecasts, avoiding a slip into contraction territory, this failed to shore up the Australian Dollar. As the index still weakened to just 50.1, indicating the lowest degree of positive monthly activity, this still raised concerns over the health of the economic outlook. A surprise deterioration in the accompanying services PMI, which dipped from 52.4 to 50.8, further fuelled market anxiety, leaving AUD exchange rates on the back foot.

Without any fresh improvement in market risk appetite the Australian Dollar looks set to remain under pressure today.

Pound Weakens in Absence of Brexit Developments

With UK parliament in a holding pattern as it awaits the EU’s decision on any potential extension of the Brexit deadline support for the Pound proved limited. While the EU is widely expected to extend the current deadline questions remain over the likely length of the delay on offer. Growing expectations of an imminent general election also kept a dampener on GBP exchange rates overnight as political uncertainty looks set to linger for longer.

This sense of political anxiety is expected to limit the potential for Pound gains for the foreseeable future.

Euro Momentum Limited as ECB Remains on Hold

The mood towards the Euro failed to see much improvement in the wake of Mario Draghi’s final meeting as President of the European Central Banks (ECB). As interest rates were left on hold and policymakers remained committed to restarting the quantitative easing programme in November there was little for investors to take encouragement from. Another underwhelming month of Eurozone manufacturing and services PMIs also dented the single currency as growth showed fresh signs of slowing.

Any deterioration in the German IFO business climate index could see the Euro shedding further ground this evening.

Sharp Drop in Durable Goods Orders Limits US Dollar Appeal

As September’s durable goods orders saw a sharper decline than forecast this cast fresh clouds over the outlook of the world’s largest economy. The -1.1% drop in orders suggests that consumers are taking a more cautious outlook as the impact of trade tensions with China and the EU continues to unfold. However, as the latest US manufacturing PMI showed an unexpected improvement this helped to keep USD exchange rates on a generally positive footing.

If the finalised University of Michigan consumer sentiment index sees any downward revision the mood towards the US Dollar could sour further.

Bets on BOC Steadiness Support Canadian Dollar

A lack of fresh domestic data was not enough to prevent the Canadian Dollar trending higher overnight, benefitting from bets of the Bank of Canada (BOC) leaving interest rates on hold next week. With the Federal Reserve widely predicted to cut rates the prospect of a monetary policy divergence helped to lift CAD exchange rates. Positive movements on the oil market offered an additional boost to the commodity-correlated currency, meanwhile.

However, a widening budget deficit may put a dampener on CAD exchange rates heading into the weekend.

Lack of Data Leaves New Zealand Dollar out of Favour

As the impact of Wednesday’s New Zealand trade data faded NZD exchange rates were left lacking in support. With market risk appetite still generally muted the appeal of the New Zealand Dollar proved largely limited yesterday.

Demand for the New Zealand Dollar is unlikely to see any particular improvement data given the continued lack of fresh domestic data today.

Data Releases

October 25th 18:00 EUR German IFO Business Climate Index (OCT) 94.5
October 26th 00:00 USD University of Michigan Consumer Sentiment Index (OCT F) 96.0
October 26th 01:00 CAD Budget Balance (AUG) -1.9 billion

Louisa Heath