Australian Dollar (AUD) Weighed Down by Chinese Manufacturing PMI Miss
The Australian Dollar (AUD) came under fresh pressure at the start of the week as January’s Chinese manufacturing PMI proved weaker than forecast.
Investors were disappointed to find that the PMI had softened from 53 to 51.5 on the month, even though this still demonstrated an expansion for the manufacturing sector. As the Australian Dollar commonly functions as a market proxy for sentiment towards the Chinese economy, this left AUD exchange rates exposed to fresh selling pressure.
If the Reserve Bank of Australia (RBA) shows any fresh signs of caution in its latest policy announcement, the mood towards the ‘Aussie’ could sour further.
Pound (GBP) Appeal Limited as New Coronavirus Variant Found in England
The Pound (GBP) experienced mixed fortunes yesterday as the South African variant of the coronavirus was identified in England.
The discovery of the more contagious variant has sparked a surge in mass testing in the areas it has been detected, spooking GBP investors.
Meanwhile, January’s finalised UK manufacturing PMI showed that the sector remained firmly in expansion territory, limiting Pound losses.
In the absence of notable UK data releases, focus will likely remain on the spread of the new coronavirus variant, and the continued success of the UK’s vaccination rollout.
Euro (EUR) Trends Lower on German Retail Sales Contraction
The Euro (EUR) weakened in the face of a sharp monthly contraction in German retail sales seen in December.
Sales plunged -9.6% on the month, in spite of the holiday season, and fuelled fresh anxiety over the outlook of the Eurozone’s powerhouse economy. With consumer confidence looking set to weaken further in the months ahead, the appeal of the Euro diminished, even as December’s Eurozone unemployment rate held steady at 8.3%.
If the fourth quarter Eurozone GDP contracts as forecast, this could see the single currency falling further out of favour with investors.
US Dollar (USD) Shakes Off Underwhelming ISM Manufacturing Index
The US Dollar (USD) held onto a positive footing even as January’s ISM manufacturing index showed a sharper slowdown than forecast.
While the PMI dipped from 60.5 to 58.7 on the month, this failed to put any particular pressure on USD exchange rates, with the manufacturing sector still demonstrating solid growth. With the general sense of market risk appetite elevated by the disappointing Chinese manufacturing PMI, the US Dollar benefitted from a boost in safe-haven demand.
A decline in the IBD/TIPP economic optimism index for February could put some additional pressure on the US Dollar tonight, however.
Canadian Dollar (CAD) Softens as Manufacturing PMI Misses Forecast
The Canadian Dollar (CAD) slipped overnight as January’s Canadian manufacturing PMI fell short of forecast.
Although forecasts had pointed towards a relatively steady reading of 57, the index instead fell from 57.9 to 54.4, indicating a notable loss of momentum on the month. Even with the manufacturing sector still delivering positive growth, with the PMI remaining above the neutral baseline of 50, this was not enough to encourage investors to favour the Canadian Dollar.
The latest developments in the global oil market could provoke additional volatility for CAD exchange rates in the days ahead.
New Zealand Dollar (NZD) Holds Footing amid Risk Aversion
The New Zealand Dollar (NZD) found some limited traction against its rivals even in the wake of the underwhelming Chinese manufacturing data.
With markets still betting on the relative resilience of the New Zealand economy, which remains more sheltered from global developments than some of its other risk-sensitive rivals, the ‘Kiwi’ held onto a stronger footing. Even so, in the absence of any encouraging data NZD exchange rates struggled to find any upward momentum.
However, anticipation ahead of Wednesday’s release of the fourth quarter labour market data could put a dampener on the New Zealand Dollar.
Data Releases
14:30 AUD Reserve Bank of Australia Rate Decision 0.1%
18:00 GBP Nationwide Housing Prices (Jan) 0.3%
21:00 EUR Eurozone Gross Domestic Product (Q4) -1%
02:00 USD IBD/TIPP Economic Optimism (Feb) 55.1