Contracting Australian Activity Weakens Australian Dollar
Both February’s manufacturing and services PMIs failed to impress ahead of the weekend, offering fresh evidence of an economic slowdown. As the manufacturing sector sunk deeper into contraction territory this left the Australian Dollar on the back foot, with the odds of a weaker first quarter gross domestic product rising. The latest resurgence in market anxiety over the impact of Covid-19 also put a dampener on the antipodean currency.
As long as market risk appetite remains muted the Australian Dollar is unlikely to find any particular traction against its rivals.
Improved UK PMIs Shore up Pound
The mood towards the Pound showed improvement as the UK manufacturing PMI delivered a surprise return to expansion, jumping from 50 to 51.9 in February. With forecasts having pointed towards a decline in the index this improvement gave investors reason to buy back into the Pound. Although doubts over the UK outlook remain, thanks to uncertainty surrounding UK-EU trade negotiations, GBP exchange rates trended higher in the wake of the data.
Unless markets see reason to expect the two sides to come to a fresh trade agreement before the end of the year a sense of Pound bearishness is likely to linger.
Better-Than-Expected German Manufacturing Boosts Euro
While the German manufacturing sector remained in a state of decline the Euro still found support against its rivals during Friday’s European session. As the PMI picked up from 45.3 to 47.8 this prompted bets that the sector’s slowdown has potentially bottomed out, improving the appeal of the single currency. Even though the risk of a first quarter growth contraction remains this failed to prevent EUR exchange rates pushing higher.
Any weakening of the German IFO business sentiment index could knock the Euro off its positive footing, though.
Surprise Services PMI Slump Drags Down US Dollar
USD exchange rates stumbled after the flash US services PMI unexpectedly slumped, falling from 53.4 to 49.4 this month. Investors were caught off guard by this dramatic deterioration in service sector activity, reassessing their confidence in the underlying health of the world’s largest economy. The corresponding manufacturing index also showed signs of softening, even though it remained above the neutral baseline of 50.
A fresh decline in the Chicago Fed national activity index may see the US Dollar shedding further ground against its rivals overnight.
Canadian Dollar Fails to Benefit from Mixed Retail Sales Data
Although Canadian retail sales saw solid growth on the year in December this was undermined by a monthly stagnation. This suggests that consumers maintained a relatively muted outlook over the holiday period, encouraging renewed anxiety over the health of the wider Canadian economy. As oil prices also took a hit during trade on Friday this all left the Canadian Dollar on a weak footing.
Even so, with forecasts pointing towards a recovery in December’s wholesale trade sales figure CAD exchange rates could gain some ground tonight.
Latest Covid-19 Worries Weigh on New Zealand Dollar
Comments from Chinese officials regarding the economic impact of Covid-19 helped to drag the New Zealand Dollar lower heading into the weekend. With confidence in the outlook of the global economy still muted demand for the risk-sensitive NZD naturally weakened.
However, the New Zealand Dollar could find a rallying point this morning if the fourth quarter retail sales figures show a significant uptick in consumer spending at the end of 2019.
Data Releases
February 24th 07:45 NZD Retail Sales ex Inflation (QoQ) (Q4) 2.1%
February 24th 19:00 EUR German IFO Business Climate Index (FEB) 96
February 24th 23:30 CAD Wholesale Trade Sales (MoM) (DEC) 0.8%
February 24th 23:30 USD Chicago Fed National Activity Index (JAN) -0.9