Australian Dollar Falls as Chinese Manufacturing Sector Contracts

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  • Weak Chinese Manufacturing Sector Weighs on Australian Dollar – Worries over Chinese growth drive AUD exchange rates lower
  • Surprise Consumer Confidence Improvement Fails to Benefit Pound – Market optimism over Brexit eases
  • Euro Strengthens on Better-Than-Expected German Inflation – Rising inflation could encourage ECB hawkishness
  • Slowing US Growth Limits US Dollar Appeal – Weakening trade drags on growth of world’s largest economy

Risk Aversion Encourages Australian Dollar Selling

Escalating geopolitical tensions weighed heavily on the Australian Dollar yesterday, with investors finding little incentive to favour risk-sensitive assets. The breakdown of the US-North Korea summit put additional pressure on AUD exchange rates as hopes of progress faded. An unexpectedly sharp dip in the latest Chinese manufacturing PMI also drove the Australian Dollar lower against its rivals, thanks to the currency’s positon as a proxy for the health of the Chinese economy.

Without a strong showing from this morning’s manufacturing PMI the mood towards the Australian Dollar is likely to remain bearish.

Pound Struggles in spite of Consumer Confidence Uptick

While February’s GfK consumer confidence index showed a surprise improvement on the month the Pound struggled to capitalise on this positive showing. As confidence among UK consumers remains in the negative at -13 this gave investors limited cause for optimism. With the initial bout of bullishness that followed the decline in the odds of a no-deal Brexit fading GBP exchange rates returned to a weaker footing overnight.

As forecasts point towards a slowdown in the UK manufacturing sector this could put additional pressure on the Pound this evening.

Rising German Inflation Boosts Euro

Germany’s consumer price index bettered forecasts in February, with the annual inflation rate accelerating to 1.6%. Although this still falls short of the European Central Bank’s (ECB) 2% target rate the uptick still offered a boost to the Euro. Markets are hopeful that this improvement could encourage ECB policymakers to take a less dovish outlook on monetary policy in the months ahead, reducing the risk of fresh monetary loosening.

If the Eurozone consumer price index shows a similar improvement on the month this may give EUR exchange rates a stronger boost.

US Dollar Stumbles as US Economy Loses Momentum

The fourth quarter annualised US gross domestic product showed a sharp slowdown on the quarter as growth eased from 3.4% to 2.6%. This decline was partly driven by a decline in export volumes, indicating that the Trump administration’s protectionist policies are dragging on the US economy. All in all, this slowdown in growth is likely to keep the Federal Reserve of a mind to leave interest rates on hold for longer. Even so, with market risk appetite deteriorating the US Dollar found some support.

A steady showing from tonight’s personal consumption expenditure core reading could offer USD exchange rates a fresh rallying point, given that the measure remains the Fed’s preferred gauge of inflation.

Widening Current Account Deficit Dents Canadian Dollar

As the fourth quarter current account deficit widened further than forecast this limited the appeal of the Canadian Dollar. The widening deficit does not bode well for the health of the Canadian economy, giving the Bank of Canada (BOC) additional incentive to remain on hold. While the Canadian Dollar was able to hold onto a stronger footing against its risk-sensitive rivals this underwhelming data still saw CAD exchange rates generally soften. 

Slowing growth may drag the Canadian Dollar down tonight if December’s gross domestic product data weakens as anticipated.

Tumbling Business Confidence Weighs on New Zealand Dollar

A fresh decline in the ANZ activity outlook index saw NZD exchange rates shed further ground yesterday. The corresponding business confidence index also dropped sharply on the month, raising fresh concerns over the outlook of the New Zealand economy. With market risk appetite generally deteriorating in response to geopolitical tensions there was little to support the New Zealand Dollar.

Another disappointing performance from the fourth quarter terms of trade index could add to the bearish mood of NZD exchange rates today.

Data Releases

March 1st 08:30    AUD    Manufacturing PMI (FEB)    52
March 1st 08:45    NZD    Terms of Trade Index (QoQ) (4Q)    -1%
March 1st 20:30    GBP    Manufacturing PMI (FEB)    52
March 1st 21:00    EUR    Eurozone Consumer Price Index (YoY) (FEB)    1.5%
March 2nd 00:30    CAD    Gross Domestic Product (YoY) (DEC)    1.4%
March 2nd 00:30    USD    Personal Consumption Expenditure Core (YoY) (DEC)    1.9%

Post by TorFX

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