Australian Dollar Shakes off PMI Disappointment
Another underwhelming set of Australian PMIs failed to drag on AUD exchange rates yesterday, even as signs continue to point towards a soft fourth quarter growth rate. This domestic weakness was overshadowed by reports that the US and China have agreed a phase one trade deal, avoiding the imposition of fresh US tariffs on Chinese produce. While it remains to be seen what the exact details of the agreement are markets still breathed a sigh of relief, lifting the Australian Dollar.
The release of the Reserve Bank of Australia’s (RBA) December meeting minutes may put renewed pressure on AUD exchange rates, though, if policymakers show increasing signs of dovishness.
Political Optimism Keeps Pound on Positive Footing
GBP exchange rates continued to gain ground at the start of the week as optimism over the general election result kept investors’ spirits up. With political instability appearing limited in the wake of the vote the Pound held onto a positive footing across the board. Even though December’s flash UK manufacturing and services PMIs showed another monthly contraction, raising the odds of a weak fourth quarter growth rate, this was not enough to drag down the Pound.
However, a weakening in average weekly earnings growth could see GBP exchange rates struggle to extend their gains further.
Deepening German Manufacturing Decline Limits Euro Strength
Worries over the outlook of the Eurozone economy picked up further last night thanks to a fresh deterioration in the German manufacturing PMI. The Eurozone’s powerhouse economy showed further signs of a slowdown as the PMI dipped from 44.1 to 43.4, sinking deeper into a state of contraction. While the service sector showed signs of acceleration this was not enough to offset the ongoing manufacturing weakness, limiting demand for the single currency.
A narrowed Eurozone trade surplus could fuel further Euro selling pressure this evening, with the global trade outlook still appearing muted.
US Dollar Falters on US-China Trade Progress
Although December’s NAHB housing market index saw a sharp improvement on the month this failed to offer the US Dollar any boost against its rivals. A weaker-than-expected Empire manufacturing index cast fresh doubt over the strength of the economic outlook, suggesting that sector activity remained muted in the final month of the year. With market risk appetite picking up in the wake of the US-China trade agreement announcement USD exchange rates were left on a generally soft footing.
However, with forecasts pointing towards a solid rebound in monthly US industrial and manufacturing production figures the US Dollar could recover some ground tonight.
Trade Worries Limit Canadian Dollar Appeal
Emerging resistance to the new USMCA deal put a dampener on the Canadian Dollar overnight, with markets discouraged by the prospect of further uncertainty. The prospect of a delayed trade deal between the US, Canada and Mexico naturally limited the appeal of the risk-sensitive Canadian Dollar. While oil prices saw a modest uptick last night this failed to encourage much positive movement for CAD exchange rates.
If October’s manufacturing sales avoid another monthly contraction, however, the appeal of the Canadian Dollar could improve.
Services PMI Slowdown Dents New Zealand Dollar
The mood towards the New Zealand Dollar soured as November’s services PMI dipped from 55.3 to 53.3 yesterday. While this still indicates a solid month of expansion for the service sector investors were disappointed by the evidence that economic activity is slowing. Even the breakthrough in US-China trade relations was not enough to give NZD exchange rates any significant boost.
Another negative month for business confidence could see the New Zealand Dollar shedding further ground this morning.
Data Releases
December 17th 10:00 NZD ANZ Business Confidence (DEC) -13.6
December 17th 10:30 AUD Reserve Bank of Australia Meeting Minutes (DEC)
December 17th 19:30 GBP Average Weekly Earnings (3M/YoY) (OCT) 3.4%
December 17th 20:00 EUR Eurozone Trade Balance (OCT) 17 billion
December 17th 23:30 CAD Manufacturing Sales (MoM) (OCT) 0%
December 18th 00:15 USD Industrial Production (MoM) (NOV) 0.8%