Australian Dollar Shakes Off Manufacturing Disappointment as China Strengthens

Positive Chinese Data Lifts Australian Dollar

An underwhelming performance from yesterday’s raft of Australian data was not enough to prevent AUD exchange rates trending higher. Although building permits saw a sharp decline on the month and the manufacturing PMI fell into a state of contraction this had a limited impact on the Australian Dollar. Instead, the antipodean currency benefited from a general improvement in market risk appetite as the Chinese manufacturing sector showed greater signs of resilience.

Even so, the mood towards the Australian Dollar could easily sour today if the Reserve Bank of Australia’s (RBA) policy meeting yields any dovish signals.

UK Manufacturing PMI Revision Fails to Boost Pound

While November’s UK manufacturing PMI saw a small upward revision this failed to offer the Pound any particular encouragement. As the sector remained firmly in contraction territory worries over the strength of the fourth quarter growth outlook lingered. Increasing anxiety in anticipation of next week’s general election also fuelled weakness for GBP exchange rates, with investors deterred by the ongoing sense of political uncertainty.

A positive revision to the finalised construction PMI is unlikely to be enough to shore up the Pound in the near term.

Evidence of German Weakness Weighs on Euro

Although the German manufacturing PMI hit a five-month best in November the mood towards the Euro remained generally muted. With the German manufacturing sector still in a state of pronounced slowdown the risks of a weak fourth quarter for the Eurozone’s powerhouse economy continued to increase. The latest bout of trade belligerence from the US also helped to stoke anxiety over the global trade outlook, putting additional pressure on the single currency.

With the Eurozone producer price index looking set to sink deeper into negative territory tonight support for EUR exchange rates is expected to remain soft.

US Dollar Slides on Fresh Signs of Manufacturing Slowdown

Investors were caught off guard as the ISM manufacturing index failed to improve on the month, instead weakening from 48.3 to 48.1 in November. This decline pushed the index back towards the ten-year low seen in September, denting confidence in the health of the world’s largest economy. With the US failing to shake off the impact of deteriorating global trade USD exchange rates were left to trend sharply lower across the board.

As long as the Trump administration continues to escalate its aggressive trade rhetoric, though, the US Dollar could find renewed support.

Manufacturing PMI Miss Limits Canadian Dollar Appeal

As the Canadian manufacturing PMI fell short of forecast CAD exchange rates came under renewed pressure last night. Markets reacted with disappointment as the index clocked in at 51.4 rather than 52.6, even though this still represented an improvement on the month. While market risk appetite saw signs of improvement at the start of the week this was not enough to prevent the Canadian Dollar from weakening.

In the absence of any fresh Canadian data CAD exchange rates look set to remain on the back foot over the course of the day.

New Zealand Dollar Shakes Off Trade Decline

A sharp decline in the third quarter terms of trade index cast a fresh shadow over the New Zealand economy yesterday. Even so, the -4.6% drop failed to keep NZD exchange rates under pressure thanks to a greater sense of market risk appetite. With investors encouraged by the latest signs of Chinese resilience the New Zealand Dollar made solid gains against the majors.

As market sentiment fades, however, the New Zealand Dollar looks vulnerable to a sharp decline.

Data Releases

December 3rd 13:30 AUD Reserve Bank of Australia Rate Decision 0.75%
December 3rd 19:30 GBP Construction PMI (NOV F) 44.5
December 3rd 20:00 EUR Eurozone Producer Price Index (YoY) (OCT) -1.9%

Louisa Heath