Jump in Unemployment Pushes Australian Dollar Sharply Lower
Investors were caught off guard as January’s Australian unemployment rate picked up from 5.1% to 5.3%, suggesting that the labour market loosened once again at the start of the year. While at least some of this increase was accounted for by an uptick in the corresponding participation rate the data still weighed heavily on the Australian Dollar. As the labour market has been a major concern of the Reserve Bank of Australia (RBA) this disappointing showing saw the odds of a potential interest rate cut jump.
As February’s manufacturing PMI looks set to slip deeper into a state of contraction the mood towards the Australian Dollar is unlikely to improve ahead of the weekend.
UK Retail Sales Rebound Fails to Lift Pound
Even though UK retail sales saw a sharp rebound in January, rising 1.6% on the month, this was not enough to shore up the Pound last night. While consumer spending picked up significantly after a lacklustre December there are doubts that this improvement will be sustained in the months ahead. A modest improvement in the CBI industrial trends orders index also failed to encourage GBP exchange rates, with souring UK-EU relations still casting a cloud over the economic outlook.
The Pound could find a solid rallying point this evening, however, if February’s flash services PMI points towards another strong month of activity for the sector.
Upbeat ECB Minutes Fuel Euro Gains
The European Central Bank’s (ECB) January meeting minutes offered encouragement to the Euro as policymakers expressed a greater sense of positivity. Although the meeting occurred before the significance of the Covid-19 outbreak became clear markets still took heart from the ECB’s minutes. While the central bank is unlikely to alter its monetary policy stance in the near future this element of optimism helped to improve the appeal of the single currency.
Another deterioration in the German manufacturing PMI could see the Euro fall rapidly out of favour today, though.
Surge in Manufacturing Index Boosts US Dollar
February’s Philadelphia Fed manufacturing index far surpassed forecasts, surging from 17 to 36.7 to hit a three-year high and inspiring greater confidence in the underlying health of the world’s largest economy. As investors had anticipated a slight slowdown in the index this gave the US Dollar a strong boost against its rivals, fuelling bets of a strong first quarter gross domestic product. With an improvement in manufacturing performance likely to encourage Federal Reserve policymakers USD exchange rates pushed higher in the wake of the index.
While the Markit manufacturing PMI is not given as much weight as the ISM survey a stronger showing from tonight’s reading may still shore up the US Dollar.
Employment Change Miss Knocks Canadian Dollar
The appeal of the Canadian Dollar weakened overnight thanks to an underwhelming ADP employment change figure. While forecasts had suggested a strong uptick in employment on the month the data ultimately fell short, showing an increase of 25,900 rather than 71,800. With the Canadian labour market continuing to show signs of softness CAD exchange rates struggled to find any particular traction.
As Canadian retail sales are expected to show a slowdown in January this could drag the Canadian Dollar lower across the board.
Risk Aversion Limits New Zealand Dollar Appeal
Positive US data and renewed anxiety over the Chinese economy outlook saw the New Zealand Dollar come under pressure yesterday. In the absence of any fresh domestic data investors lacked the incentive to support NZD exchange rates, given the fresh deterioration in risk appetite.
Unless worries over the global economy show signs of easing the potential for a New Zealand Dollar rally looks limited.
Data Releases
February 21st 08:00 AUD Manufacturing PMI (FEB) 48.9
February 21st 18:30 EUR German Manufacturing PMI (FEB) 44.8
February 21st 19:30 GBP Services PMI (FEB) 53.4
February 21st 23:30 CAD Retail Sales (MoM) (DEC) 0.1%
February 22nd 00:45 USD Manufacturing PMI (FEB) 51.5