Lack of Chinese Manufacturing Growth Weighs Heavily on Australian Dollar

Chinese Manufacturing Stagnation Pushes Australian Dollar Down

As the Chinese manufacturing PMI slipped to 50.0 for January this prompted a fresh round of selling pressure for the Australian Dollar. With the manufacturing sector stagnating the odds of the Chinese economy delivering a weak first quarter picked up, adding to existing anxiety over the spread of the Wuhan coronavirus. This drove a fresh increase in market risk aversion, dragging the risk-sensitive Australian Dollar lower across the board.

Any weakening of the TD Securities inflation gauge could add to the bearishness of AUD exchange rates today as markets brace for the Reserve Bank of Australia’s (RBA) latest rate decision.

Positive Mortgage Approvals and Consumer Credit Benefit Pound

Support for the Pound remained solid heading into the weekend thanks to a positive showing from December’s mortgage approvals and consumer credit figures. With signs pointing towards an increased level of domestic confidence in the wake of the general election result this encouraged hopes of a wider rebound in economic activity. Although significant uncertainty still hangs over the future of the UK economy thanks to Brexit this failed to dent GBP exchange rates on Friday.

Confirmation that the manufacturing sector remained in a state of contraction in January could put a dampener on Pound demand today, however.

Weaker Eurozone Growth Drags Euro Lower

Confidence in the Eurozone economy continued to deteriorate as the fourth quarter gross domestic product fell short of forecasts. Both France and Italy experienced surprise growth contractions in the final three months of 2019, suggesting that further sluggishness could be in store for the currency union. With the German economy already showing fresh signs of slowing investors saw little reason to favour the Euro, even as the Eurozone consumer price index picked up modestly.

As long as the finalised set of Eurozone manufacturing PMIs still paint an underwhelming picture the mood towards the single currency is unlikely to improve.

US Dollar Falters on Mixed Personal Consumption Expenditure

December’s personal consumption expenditure core data failed to offer any particular encouragement to the US Dollar, even as the monthly reading bettered expectations. With the latest personal income index showing a greater slowdown than anticipated this undermined confidence in the outlook of the world’s largest economy. Although market risk appetite remained elevated this was not enough to shore up USD exchange rates.

With forecasts pointing towards a modest improvement in the latest ISM manufacturing index, though, the US Dollar looks set to find fresh traction overnight.

Gross Domestic Product Uptick Fails to Boost Canadian Dollar

The appeal of the Canadian Dollar proved generally limited in spite of a solid uptick in November’s monthly gross domestic product. Even though growth bounced back to 0.1% on the month this failed to encourage CAD exchange rates to return to a positive footing. With market sentiment still bearish due to the Wuhan coronavirus outbreak and with oil prices under pressure support for the Canadian Dollar proved limited.

As markets expect to see the Canadian manufacturing PMI slip into contraction territory tonight CAD exchange rates are likely to remain under pressure.

Consumer Confidence Decline Adds to New Zealand Dollar Weakness

With the ANZ consumer confidence index showing softness the New Zealand Dollar fell further out of favour. As markets remained concerned by the prospect of a significant drop in global growth and trade thanks to the coronavirus there appeared little reason to buy into the risk-sensitive antipodean currency.

Any signs of caution in the Treasury’s monthly economic indicators could see NZD exchange rates slip lower this morning.

Data Releases

February 3rd 10:00 AUD TD Securities Inflation (YoY) (JAN)
February 3rd 11:00 NZD Treasury Publishes Monthly Economic Indicators
February 3rd 19:00 EUR Eurozone Manufacturing PMI (JAN F) 47.8
February 3rd 19:30 GBP Manufacturing PMI (JAN F) 49.8
February 4th 00:30 CAD Manufacturing PMI (JAN) 49.6
February 4th 01:00 USD ISM Manufacturing Index (JAN) 48.0

Louisa Heath