Australian Dollar (AUD) Remains Under Pressure amid Covid-19 Anxiety
The Australian Dollar (AUD) dropped against many of the majors yesterday in spite of an improvement in September’s set of PMIs.
Although the services PMI edged out of contraction territory to stagnation, climbing from 49 to 50, this failed to encourage any particular sense of confidence in the economic outlook. With markets still in a decidedly bearish mood as a result of growing global Covid-19 fears, the Australian Dollar remained on the back foot.
AUD exchange rates may struggle to find much in the way of upside momentum in the near term with no fresh data on the calendar today.
Pound (GBP) Recovers in spite of Underwhelming UK Services PMI
The Pound (GBP) recovered some of its lost ground as the initial market reaction to Boris Johnson’s fresh Covid-19 restrictions faded ahead of Chancellor Rishi Sunak’s announcement of a ‘Winter Economy Plan’.
While the UK economy still looks set to come under greater pressure in the coming months, thanks to a combination of Covid-19 and Brexit, this failed to keep the Pound down. A slightly disappointing performance from September’s UK services PMI still pointed towards the economy having started to lose some of its initial recovery momentum, however.
If the CBI distributive trades index falls from -6 to -10 as forecast, this could see the Pound trending lower once again, with a weak reading highlighting the pressures facing the retail sector. Additionally, GBP investors will look to Sunak’s ‘Winter Recovery Plan’ for insight into how the UK government aims to drive recovery.
Euro (EUR) Weighed Down by Unexpectedly Negative Eurozone Services PMI
The Euro (EUR) fell as the Eurozone services PMI unexpectedly fell into contraction territory in September, dropping from near stagnation at 50.5 to a reverse in growth of 47.6.
This indicates a significant slowdown in sector growth at the end of the third quarter, raising bets that the Eurozone economy could shed further momentum as Covid-19 pressures return. Investors were also discouraged by the latest German GfK consumer confidence index, which failed to rebound as forecast on the month and remained near its record lows.
However, if the German IFO business climate index can pick up as anticipated this may help to put a floor under EUR exchange rates this evening.
US Dollar (USD) Holds its Footing as US Manufacturing PMI Hits 20-Month High
The US Dollar (USD) held onto its positive footing overnight even as the US manufacturing PMI surveys showed a mixed picture.
As the PMI rose to a 20-month high, this fuelled a renewed sense of confidence in the underlying performance of the world’s largest economy. With pandemic anxiety still driving a sense of safe-haven demand, the US Dollar maintained a generally stronger footing against its rivals, shrugging off increasing political tensions.
Another lower week of initial jobless claims may give USD exchange rates a fresh boost as worries over the strength of the labour market fade.
Canadian Dollar (CAD) Strength Limited as US Inventories See Smaller Drawdown
The Canadian Dollar (CAD) saw little improvement thanks to a smaller-than-expected drawdown in US crude oil inventories.
Even though the number of barrels added to US stocks fell on the week, investors were still disappointed, keeping oil prices under pressure throughout the European session. With global demand still looking set to decrease in the coming months as economies come under renewed Covid-19 pressure, the appeal of the commodity-correlated Canadian Dollar proved muted.
If average weekly earnings can demonstrate a solid month of growth for July, though, this may offer the Canadian Dollar a rallying point.
New Zealand Dollar (NZD) Benefits as RBNZ Points towards Greater Economic Support
The New Zealand Dollar (NZD) found some strength as the Reserve Bank of New Zealand (RBNZ) conformed to market expectations and left interest rates unchanged.
Comments from policymakers helped to shore up NZD exchange rates as they pointed towards a willingness to deliver fresh support to the economy. While the RBNZ’s hands appeared largely tied ahead of the upcoming election, this still gave the New Zealand Dollar a boost.
Nevertheless, with August’s trade balance expected to show a sharp decline into a state of deficit the mood towards the New Zealand Dollar could soon sour once again.
Data Releases
08:45 NZD Balance of Trade (Aug) –NZ$100 million
18:00 EUR German IFO Business Climate Index (Sep) 93.8
20:00 GBP CBI Distributive Trades Index (Sep) -10
22:30 CAD Average Weekly Earnings (Jul)
22:20 USD Initial Jobless Claims (19/Sep) 869,000