Chinese Manufacturing Slowdown Drags on Australian Dollar

Chinese Manufacturing Slowdown Weighs on Australian Dollar

Fresh signs of a slowdown within the Chinese manufacturing sector left AUD exchange rates exposed to selling pressure yesterday. With the world’s largest economy losing further momentum the appeal of the risk-sensitive Australian Dollar diminished. This overshadowed a better-than-expected 7.6% rebound in Australian building permits, even as this improved confidence in the outlook of the domestic construction sector.

With forecasts pointing towards an easing in the third quarter producer price index the Australian Dollar may remain on the back foot heading into the weekend.

Pond Shakes off Falling Consumer Confidence

While the GfK consumer confidence index continued to deteriorate in October, falling from -12 to -14, this failed to dent the Pound. As the previous October Brexit deadline passed a sense of relief helped to buoy GBP exchange rates, in spite of the continued sense of uncertainty still hanging over the UK’s future. With political anxiety temporarily easing the Pound was able to recover some of its lost ground overnight.

However, the positive mood of GBP exchange rates could well fade on the back of October’s manufacturing PMI if it falls deeper into contraction territory.

Stronger Eurozone Growth Offers Limited Euro Benefit

A better-than-expected performance from the third quarter Eurozone gross domestic product helped to shore up the Euro. As the quarterly growth rate held steady at 0.2% this diminished concerns that the currency union is at risk of sliding into negative growth territory. With October’s consumer price index data showing an easing in inflation, however, the mood towards the single currency soon soured.

In the absence of any fresh Eurozone data today EUR exchange rates may struggle to find any particular support.

US Dollar Falters as Fed Remains Under Political Pressure

The Federal Reserve’s much-anticipated decision to cut interest rates by 25bpt failed to offer the US Dollar any particular encouragement. While Fed policymakers signalled a willingness to leave interest rates on hold for now this triggered another broadside from the White House. With political pressure on the central bank not letting up and the personal consumption expenditure core falling short of forecasts investors saw limited reason to favour the US Dollar.

A weak month for the non-farm payrolls report could see USD exchange rates come under further pressure tonight.

Disappointing GDP Leaves Canadian Dollar Weakened

Support for the Canadian Dollar faltered last night as August’s monthly gross domestic product reading failed to strengthen as far as markets anticipated. With growth only picking up from 0.0% to 0.1% confidence in the outlook of the Canadian economy remained generally muted. A disappointing month of producer price index data put additional pressure on CAD exchange rates, with the odds of future Bank of Canada (BOC) easing looking higher.

Any signs of slowing from October’s manufacturing PMI may add to the bearish mood of the Canadian Dollar.

Modest Business Confidence Improvement Fails to Impress New Zealand Dollar

While October’s ANZ business confidence index showed some improvement on the month, picking up from -53.5 to -42.4, this was not enough to reassure NZD exchange rates. With business optimism still distinctly lacking worries over the economic outlook persisted, to the detriment of the New Zealand Dollar. A muted sense of market sentiment also limited the potential for NZD exchange rate gains.

Unless market optimism picks back up ahead of the weekend the New Zealand Dollar looks set to remain on the back foot.

Data Releases

November 1st 10:30 AUD Producer Price Index (YoY) (3Q) 1.8%
November 1st 19:30 GBP Manufacturing PMI (OCT) 48.3
November 1st 22:30 USD Change in Non-Farm Payrolls (OCT) 89,000
November 1st 23:30 CAD Manufacturing PMI (OCT) 50.6

Louisa Heath