Australian Dollar Slumps Thanks to PMI Contraction
Another round of contraction from the latest Australian PMIs put additional weight on the Australian Dollar yesterday. With the economy continuing to show signs of a slowdown AUD exchange rates remained on the back foot, wary of the potential for a weak fourth quarter gross domestic product. As worries over a potential Middle Eastern conflict lingered this added to the weakness of the antipodean currency.
Until investors see evidence that US-Iran tensions are cooling the Australian Dollar looks set to remain under pressure.
Better-Than-Expected Services PMI Boosts Pound
Investors were surprised to find that December’s UK services PMI had been revised up from 49.3 to 50.0, indicating that the sector stagnated rather than contracted. Although this was still not an overly positive signal for the UK economy, with the fourth quarter gross domestic product looking set to disappoint, the mood towards the Pound improved. With business confidence showing signs of improvement GBP exchange rates were able to make solid gains.
Without the release of fresh UK data today the Pound remains vulnerable to any political developments as MPs return to parliament.
Euro Fails to Capitalise on German Retail Sales Rebound
While German retail sales saw unexpectedly strong growth in November, reversing the previous month’s decline, this was not enough to push the Euro higher across the board. Worries over the health of the Eurozone economic outlook persisted, even after a positive set of services PMIs. With markets still concerned by the negative impact of weaker trade on the economy of the currency union EUR exchange rates struggled to find a rallying point.
An uptick in the Eurozone consumer price index may encourage Euro demand, with higher inflation likely to improve the confidence of European Central Bank (ECB) policymakers.
Solid Services PMI Encourages US Dollar Demand
A solid showing from December’s US services PMI added to the positive mood of the US Dollar, suggesting a greater level of resilience within the world’s largest economy. This stronger PMI helped to offset the impact of the disappointing manufacturing sector data, offering the Federal Reserve greater cause for confidence. Persistent market anxiety over the deteriorating relationship between the US and Iran also shored up USD exchange rates thanks to increased safe-haven demand.
If the US trade deficit narrows as expected overnight this could encourage the US Dollar to extend its bullish run further.
Underwhelming Inflation Signal Weighs Down Canadian Dollar
November’s producer price index failed to impress last night, with signs continuing to point towards limited inflationary pressure within the Canadian economy. This negative showing knocked some of the wind out of the Canadian Dollar’s sails, limiting the impact of the latest surge in oil prices. Even as the price of Brent crude broke back above the US$70 per barrel mark this failed to hold up CAD exchange rates.
As forecasts suggest a widening of the trade deficit in November the Canadian Dollar could shed further ground across the board tonight.
Middle Eastern Worries Keep New Zealand Dollar in Check
An elevated sense of market risk aversion lingered at the start of the week, dragging on the New Zealand Dollar. With investors bracing for the possibility of a further deterioration in US-Iran relations, and its subsequent impact on global trade, NZD exchange rates struggled to find any particular footing.
With domestic data thin on the ground this week the New Zealand Dollar looks vulnerable to sustained selling pressure unless geopolitical tensions show signs of easing.
Data Releases
January 7th 20:00 EUR Eurozone Consumer Price Index (YoY) (DEC) 1.3%
January 7th 23:30 CAD Balance of Trade (NOV) -1.15 billion
January 7th 23:30 USD Balance of Trade (NOV) -43.8 billion