Retail Sales Miss Dents Australian Dollar Demand

Disappointing Retail Sales Growth Limits Australian Dollar Support

A weaker-than-expected retail sales figure limited the appeal of the Australian Dollar yesterday, with sales only showing growth of 0.2% on the month. This suggests that consumers are taking a more cautious outlook in the face of slowing global trade, limiting the potential for economic growth in the third quarter. With markets also bracing for today’s Reserve Bank of Australia (RBA) rate decision the potential for AUD exchange rate gains proved generally muted.

If RBA policymakers opt to take a positive stance at their meeting, though, the Australian Dollar could find a solid rallying point this afternoon.

UK Construction Sector Contraction Weighs Down Pound

Although October’s UK construction PMI proved stronger than forecast this was not enough to shore up the Pound overnight. As the headline index clocked in at 44.2 this still represented a month of contraction, highlighting the continued weakness of the construction sector. With Brexit-based uncertainty looking set to keep the sector under pressure for the remainder of the year investors took the opportunity to sell out of GBP exchange rates.

A similarly underwhelming performance from the corresponding services PMI may drag the Pound sharply lower this evening, given that the sector remains the primary driving force of the UK economy.

Latest Signs of German Manufacturing Slowdown Drag on Euro

An upward revision to October’s German manufacturing PMI failed to ease market anxiety over the outlook of the Eurozone’s powerhouse economy. The reading of 42.1 still signalled a weak month for the sector, driven in part by a sharp decline in employment levels. This weakness offered fresh indication that Germany likely entered a recession in the third quarter, casting a dark cloud over the outlook of the wider Eurozone and denting the Euro.

An uptick in September’s Eurozone producer price index figures could encourage the single currency to recover some of its lost ground, however.

US Dollar Bounces Back on Signs of Manufacturing Resilience

Despite a sharp monthly decline in factory orders the US Dollar found renewed support overnight, shaking off anxiety over the health of the US manufacturing sector. Investors took encouragement from a surprisingly solid improvement in October’s ISM New York index, which strengthened from 42.8 to 47.7. This suggests that manufacturing activity recovered at the start of the fourth quarter, giving investors fresh incentive to favour the US Dollar.

A narrowing of the US trade deficit could offer USD exchange rates an additional boost tonight.

Oil Price Rally Fuels Canadian Dollar Demand

Oil prices saw a solid rally at the start of the week as hopes of an imminent phase one US-China trade agreement picked up once again. With both US and Chinese officials offering positive signals the general sense of market risk appetite strengthened. This helped to drive Brent crude to its best level in more than a month, lifting the commodity-correlated Canadian Dollar in turn.

CAD exchange rates may gain further ground on the back of a narrowed trade deficit, even though forecasts point towards a lower level of exports in September.

New Zealand Dollar Upside Limited as Treasury Takes Downbeat Tone

As market risk appetite generally improved the New Zealand Dollar found fresh support against many of the majors. However, the potential for NZD exchange rate gains was ultimately limited as the Treasury’s latest economic bulletin warned of the downside risks facing the domestic economy. With the Treasury also lowering its neutral interest rate forecast by 75 basis points the risk of further Reserve Bank of New Zealand (RBNZ) rate cuts remains.

Unless the ANZ commodity price index delivers a strong improvement this morning NZD exchange rates look vulnerable to selling pressure.

Data Releases

November 5th 10:00 NZD ANZ Commodity Price Index (OCT)
November 5th 13:30 AUD Reserve Bank of Australia Rate Decision 0.75%
November 5th 19:30 GBP Services PMI (OCT) 49.7
November 5th 20:00 EUR Eurozone Producer Price Index (YoY) (SEP) -1.2%
November 5th 23:30 USD Trade Balance (SEP) -52.5 billion
November 5th 23:30 CAD Trade Balance (SEP) -0.7 billion

Louisa Heath