Record Slump in Chinese Factory Profits Drags Down Australian Dollar

Slump in Chinese Factory Profits Fuels Australian Dollar Selling

As Chinese factory profits saw their largest fall on record in the first two months of 2020 this stirred a fresh bout of market anxiety. While there are signs that the Chinese economy is getting back on its feet now, as the impact of the initial Covid-19 outbreak fades, this weakness still weighed on risk appetite. This limited the potential for Australian Dollar gains ahead of the weekend, even as analysts revised their global growth forecasts for the year lower.

Ahead of the latest comments from Reserve Bank of Australia (RBA) deputy governor Guy Debelle tomorrow AUD exchange rates look set to remain on a softer footing.

Covid-19 Anxiety Prompts Pound Wobble

News that Boris Johnson has tested positive for Covid-19 saw the Pound stumble, with investors wary of the potential for political disruption. Even so, GBP exchange rates were able to hold onto much of the positive momentum they’d gained in the latter half of the week. While the economy has still yet to feel the ultimate impact of the pandemic this uncertainty was not enough to weigh down the Pound.

A dip in February’s mortgage approvals figure could see GBP exchange rates come under fresh pressure this afternoon, however.

French Consumer Confidence Fails to Boost Euro

Demand for the Euro remained limited in spite of a better-than-expected French consumer confidence index. Although the index only showed a minimal deterioration on the month this failed to ease market anxiety over the outlook of the Eurozone economy. With both Spain and Italy struggling under the weight of fresh Covid-19 cases the currency union appears on course to suffer a major slowdown.

Even so, a softening of the German consumer price index could offer a boost to the Euro as weaker inflation may help to cushion households from the impact of the current crisis.

Weak Consumer Sentiment Limits US Dollar Appeal

As the finalised University of Michigan consumer sentiment index for March showed a sharp drop the US Dollar struggled to return to a positive footing against its rivals. With the number of Covid-19 infections in the US finally surpassing China investors saw little cause for confidence. The increasing risk of the pandemic delivering a significant economic hit to the world’s largest economy left USD exchange rates with limited traction.

With forecasts pointing towards a solid improvement in tonight’s Richmond Fed manufacturing index, though, the US Dollar could find renewed demand.

BOC Interest Rate Cut Weighs on Canadian Dollar

The Bank of Canada (BOC) caught markets off guard by delivering an interest rate cut during Friday’s European session. With the interest rate cut from 0.75% to 0.25% this put the BOC back in line with many of its international peers. This left the Canadian Dollar on a weaker footing against its rivals, particularly as Brent crude prices saw another -4% fall on the day.

Unless market risk appetite picks up sharply the mood towards the Canadian Dollar looks set to remain bearish in the near term.

Global Recession Anxiety Keeps New Zealand Dollar Under Pressure

In the wake of the disappointing Chinese factory data the mood towards the New Zealand Dollar generally soured. With analysts forecasting a much deeper global recession for the first half of 2020 the appeal of the risk-sensitive NZD proved limited.

Without the support of fresh domestic data the New Zealand Dollar may struggle to find any particular upside momentum today.

Data Releases

March 30th 18:30 GBP Mortgage Approvals (FEB) 68,200
March 30th 22:00 EUR Germany Consumer Price Index (YoY) (MAR) 1.3%
March 31st 00:30 USD Dallas Fed Manufacturing Activity Index (MAR) 6.2

Louisa Heath

louisa.heath@torfx.com


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