Australian Dollar Benefits as Chinese Manufacturing Returns to Growth

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  • Signs of Resilient Chinese Growth Boost Australian Dollar – AUD weakness forecast ahead of RBA meeting
  • Underwhelming Eurozone Inflation and PMIs Drive Euro Losses – Markets see increasing risk of ECB dovishness
  • USD Exchange Rates Falter as US Retail Sales Slow – Limited safe-haven demand weighs on US Dollar
  • Stockpiling Helps to Generate UK Manufacturing Sector Surge – Brexit uncertainty continues to hang over the Pound

Stronger Chinese Manufacturing Sector Encourages Australian Dollar

Demand for the Australian Dollar picked up yesterday in the wake of Sunday’s better-than-expected Chinese manufacturing PMI, which returned to a state of positive growth. With the world’s second largest economy showing fresh signs of resilience market risk appetite naturally improved, driving AUD exchange rates higher as base metal prices also rose. However, the Australian Dollar lost some of its initial boost as March’s NAB business confidence index unexpectedly dropped to 0.

AUD exchange rates are likely to come under increasing pressure ahead of this afternoon’s Reserve Bank of Australia (RBA) interest rate decision.

Pound Capitalises on Improved UK Manufacturing PMI

March’s UK manufacturing PMI offered a boost to the Pound last night as the index surged from 52.1 to 55.1 on the month. This suggests that the domestic manufacturing sector is in a more robust state of health than markets had feared. However, the positive impact of the data was still marred by the fact that much of this growth was the result of business stockpiling. Although an air of uncertainty continued to hang over the political outlook this was not enough to prevent GBP exchange rates pushing higher

As forecasts point towards another month of contraction in March’s construction PMI this could put a fresh dampener on the Pound today.

Disappointing Eurozone Inflation Weighs on Euro

Following on the heels of March’s underwhelming German consumer price index the Eurozone reading fell short of forecasts. Investors were disappointed as the headline inflation rate eased from 1.5% to 1.4%, accompanied by a decline in the core consumer price index. This weaker showing will give European Central Bank (ECB) policymakers fresh incentive to leave interest rates on hold. As the finalised raft of Eurozone manufacturing PMIs also pointed towards weaker growth EUR exchange rates were left on a soft footing.

If February’s Eurozone producer price index data shows a similar decline this is likely to drive further Euro losses.

Retail Sales Contraction Dents US Dollar

US data proved rather mixed last night, limiting support for the US Dollar once again. While the ISM manufacturing index strengthened from 54.2 to 55.3, signalling continued strong growth, this was not enough to shore up USD exchange rates. Investors were instead concerned by a surprise contraction in advance retail sales in February, suggesting that US consumers are adopting a more cautious outlook. Coupled with a general uptick in market risk appetite this left the US Dollar under pressure.

If February’s durable goods orders slump as forecast tonight USD exchange rates could extend their losses further.

Canadian Dollar Eases as Manufacturing Growth Slows

While oil prices picked up at the start of the week this was not enough to shore up the Canadian Dollar. Focus instead fell on March’s manufacturing PMI, which slipped from 52.6 to 50.5 as the sector lost fresh momentum. This weaker showing dented confidence in the outlook of the Canadian economy, leaving CAD exchange rates biased to the downside even as market risk appetite improved.

Even so, as long as oil prices maintain a bullish trend this should limit the downside potential of the Canadian Dollar in the near term.

Risk Appetite Supports New Zealand Dollar

Sunday’s positive Chinese data offered encouragement to the New Zealand Dollar, even in the wake of the recent run of weak data from New Zealand. As the impact of last week’s Reserve Bank of New Zealand (RBNZ) policy announcement continued to fade NZD exchange rates pushed higher against many of the majors.

The outcome of the latest Global Dairy Trade auction may offer an additional boost to the New Zealand Dollar.

Data Releases

April 2nd 14:30    AUD    Reserve Bank of Australia Rate Decision    1.5%
April 2nd 19:30    GBP    Construction PMI (MAR)    49.7
April 2nd 20:00    EUR    Eurozone Producer Price Index (YoY) (FEB)    3.1%
April 2nd 23:30    USD    Durable Goods Orders (FEB P)    -1.2%

Post by TorFX

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