Lack of RBA Action Not Enough to Spur Australian Dollar Gains
The Reserve Bank of Australia’s (RBA) decision to leave interest rates on hold at its September meeting failed to offer the Australian Dollar any particular boost. Lingering concerns over the underlying health of the Australian economy kept AUD exchange rates on the back foot, even as demand for the safe-haven US Dollar deteriorated. With the strength of the global recovery from the Covid-19 pandemic still in question investors saw limited incentive to favour the Australian Dollar.
Demand for the antipodean currency could weaken further this morning if the second quarter gross domestic product report shows as sharp a contraction as forecast.
Pound Recovers Ground as UK Manufacturing Picks up
Confirmation that the UK manufacturing PMI strengthened in August helped to lift the Pound to a fresh 2020 high against the US Dollar. As the manufacturing sector demonstrated solid expansion on the month, in spite of ongoing Covid-19 worries, the mood towards the Pound generally improved. While the persistent spectre of the Brexit cut-off continues to hang over the economic outlook this failed to prevent GBP exchange rate gains overnight.
However, a weaker month of housing price growth could see the Pound struggle to hold onto its gains today.
Surprise Negative Eurozone Inflation Drags on Euro
Investors were caught off guard by news that the Eurozone consumer price index had slipped into negative territory in August. While forecasts had pointed towards a slowdown in inflation this drop into deflation left EUR exchange rates exposed to selling pressure. With inflation trailing far below the European Central Bank’s (ECB) 2% target the chances of fresh monetary stimulus appear higher, limiting the appeal of the single currency.
A stronger month of German retail sales may help to soften the downside bias of the Euro this afternoon, though.
Dovish Fed Outlook Continues to Hamper US Dollar Demand
A strong performance from both the ISM and Markit manufacturing PMIs failed to shore up the US Dollar overnight. While signs point towards the US manufacturing sector recovering some of its lost momentum in August the continued reduction of the workforce limited the impact of the data. In the wake of the Federal Reserve’s shift to a more dovish outlook investors continued to see little reason to support the US Dollar.
Even so, a solid performance from July’s US factory orders data could limit the potential for additional USD exchange rate losses.
Improved Manufacturing PMI Fails to Benefit Canadian Dollar
An uptick in August’s Canadian manufacturing PMI was not enough to offer a boost to the Canadian Dollar last night. CAD exchange rates lost some of their recent momentum as worries over the health of the global economy persisted, in spite of a solid set of manufacturing PMIs. Even so, the Canadian Dollar still benefitted from the relative weakness of its nearest rival as markets priced in the prospect of US interest rates remaining lower for longer.
The mood towards the Canadian Dollar could sour further this evening if the second quarter labour productivity reading proves soft.
New Zealand Dollar Shakes off Weak Business Confidence
In spite of the continued decline in the ANZ business confidence index the New Zealand Dollar found fresh support yesterday. With investors piling out of the safe-haven US Dollar the appeal of higher-yielding assets rose, bolstering demand for the antipodean currency. As markets adopted a more positive outlook NZD exchange rates were able to push higher across the board.
However, any souring of market sentiment could easily see the New Zealand Dollar trending lower once again.
Data Releases
September 2nd 11:30 AUD Gross Domestic Product (QoQ) (2Q) -6%
September 2nd 16:00 EUR Germany Retail Sales (MoM) (JUL) 0.5%
September 2nd 16:00 GBP Nationwide Housing Prices (MoM) (AUG) 0.5%
September 2nd 22:30 CAD Labour Productivity (QoQ) (2Q) 2.5%
September 3rd 00:00 USD Factory Orders (MoM) (JUL) 6%