Australian Dollar Upside Limited by Chinese Manufacturing PMI Miss

Australian Dollar (AUD) Support Limited as Chinese Manufacturing PMI Misses Forecast

The Australian Dollar (AUD) only saw limited support in the wake of a weaker-than-expected Chinese manufacturing PMI. Although the index still demonstrated a month of growth for the manufacturing sector, it still showed a slowdown, dipping from 54.9 to 53.0 in December.

The general market sense of risk appetite began to sour overnight, meanwhile, driven by the prospect of tightening social restrictions around the globe in spite of the start of the rollout of the AstraZeneca vaccine, which weighed on the risk-sensitive ‘Aussie’.

Unless sentiment sees another dramatic shift in the near term, the ‘Aussie’ could struggle to find any particular support today.

Pound (GBP) Weighed Down by Looming Threat of Fresh National Lockdown

The Pound (GBP) fell sharply out of favour as markets anticipated the prospect of a fresh tightening of UK social restrictions.

Even though the first UK individuals received the AstraZeneca vaccine on Monday, this was ultimately overshadowed as Scotland announced a return to national lockdown. The prospect of another period of lockdown for the entire union gave investors little cause for confidence, with the UK service sector already slowing in the face of the ongoing Covid-19 crisis.

Looking ahead, coronavirus developments will likely continue driving GBP exchange rates volatility as market mood sours on tighter national restrictions.

Euro (EUR) Rallies as Eurozone Manufacturing Sector Shakes off Covid-19 Concerns

The Euro (EUR) found renewed traction against its rivals even as the finalised Eurozone manufacturing PMIs saw some modest downward revisions.

Markets showed little disappointment over the slightly weaker PMI readings as the manufacturing sector still experienced a solid month of growth across the currency union. With German manufacturing holding up well in spite of December’s lockdown conditions, worries over the outlook of the Eurozone’s powerhouse economy eased, to the benefit of the single currency.

However, the mood towards the Euro could sour in response to the latest German labour market data and any signs of rising unemployment.

US Dollar (USD) Muted despite Improved Manufacturing PMI Reading

The US Dollar (USD) failed to benefit from a better-than-expected manufacturing PMI reading thanks to a lingering lack of safe-haven demand.

Even as the general mood among investors soured, the US Dollar remained on the back foot, weighed down by worries over the US economic outlook and the relative strength of other safe-haven assets. While the manufacturing sector demonstrated strong expansion at the end of 2020, this was not enough to give USD exchange rates any boost at this stage.

A similarly impressive reading from the ISM manufacturing PMI could give the US Dollar a stronger boost, though, given that the measure is generally given more weight by markets.

Canadian Dollar (CAD) Unable to Push Higher Ahead of OPEC+ Decision

The Canadian Dollar (CAD) found little support as markets awaited the outcome of the OPEC+ meeting and any potential production limits.

While oil prices saw some slight gains in anticipation of another potential delay to an increase in oil production, designed to prop up prices, this failed to lift the Canadian Dollar. With global demand for oil at risk if the Covid-19 crisis fails to improve in the months ahead the commodity-correlated currency remained on the back foot.

Confirmation that the producer price index fell deeper into negative territory in November could see the Canadian Dollar shedding further ground tonight.

New Zealand Dollar (NZD) Gains Limited by Fading Risk Appetite

The New Zealand Dollar (NZD) saw a mixed performance yesterday as some of the earlier sense of market risk appetite started to fade.

With a new strain of Covid-19 appearing to pose a fresh risk to the global economic recovery, the upside potential of NZD exchange rates weakened. Although the New Zealand economy remains largely insulated from the pandemic crisis, the prospect of a slower global recovery still put a dampener on the ‘Kiwi’.

In the absence of any domestic data developments the New Zealand Dollar looks set to continue taking its cues from any shifts in market sentiment.

Data Releases

18:00 EUR Germany Unemployment Rate (Dec) 6.1%
00:30 CAD Producer Price Index (Nov) -0.6%
02:00 USD ISM Manufacturing PMI (Dec) 56.6

Louisa Heath