Canadian Dollar Surges Higher on News of US-Canada Trade Deal Agreement

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Headlines

  • Easing Chinese Growth Weighs Down Australian Dollar – ‘Aussie’ fails to capitalise on wider improvement in market sentiment
  • US-Canada Trade Agreement Encourages Canadian Dollar Gains – Easing of trade tensions boosts investor confidence
  • Pound Strengthens on Unexpectedly Improved UK Manufacturing PMI – Weaker construction sector could drag on GBP
  • Euro Fails to Capitalise on Falling Eurozone Unemployment Rate – Confidence in Eurozone economic outlook remains muted


Australian Dollar Fails to Benefit From Solid Domestic Data

A solid uptick in September’s Australian manufacturing PMI was not enough to boost the Australian Dollar against its rivals at the start of the week. Investors were more concerned by unexpected signs of a slowdown in the Chinese manufacturing sector. This undermined the appeal of risk-sensitive assets including the ‘Aussie’ even as the wider sense of market risk appetite picked up. As a result, news that the US and Canada have agreed a new trade deal failed to shore up AUD exchange rates.

Further volatility may be in store for the Australian Dollar this morning on the back of the Reserve Bank of Australia’s (RBA) latest policy meeting.

Better-Than-Expected UK Manufacturing Boosts Pound

The Pound benefitted from a surprise improvement in the latest UK manufacturing PMI, which rose from 53.0 to 53.8 on the month. As this uptick was driven by firming domestic demand and business confidence hitting a three-month high the mood towards Sterling naturally picked up. While Brexit uncertainty continues to hang over the domestic outlook the upside surprise was still enough to give GBP exchange rates a leg up overnight.

A similarly solid showing from the corresponding construction PMI may see the Pound extend its gains further this evening.

Eurozone Manufacturing PMI Falls to Two-Year Low

Although the Eurozone unemployment rate dipped in line with forecasts this failed to shore up the Euro yesterday. Focus instead fell on the unexpected downward revision to September’s Eurozone manufacturing PMI. As growth in the currency union’s manufacturing sector declined to its lowest level in two years this limited the appeal of the Euro, highlighting the negative impact of recent global trade tensions.

Any easing in August’s Eurozone producer price index could put the single currency under greater pressure as this would point towards weaker inflation.
 
US Dollar Falters on Underwhelming Manufacturing Data

September’s ISM manufacturing index proved disappointing, easing from 61.3 to 59.8 as the sector lost momentum on the month. Even so, the manufacturing sector remained in a solid state of growth, limiting the dent to USD exchange rates. Easing trade tensions between the US and China put some pressure on the US Dollar, meanwhile, as investors were encouraged to pile back into higher-yielding assets.

However, with the Federal Reserve still appearing on track to raise interest rates further in the months ahead the downside potential of the US Dollar looks limited.

US-Canada Trade Deal Shores up Canadian Dollar

The successful conclusion of NAFTA renegotiations helped to push the Canadian Dollar higher across the board at the start of the week. While Canada had to concede greater access to its dairy industry the guarantees for the automobile industry it received in exchange were enough to encourage markets. With trade tensions between the US and Canada now easing CAD exchange rates received a boost, in spite of an underwhelming manufacturing PMI.

As the initial reaction to the news starts to fade, though, the Canadian Dollar may struggle to hold onto a stronger footing.

Weaker Chinese Manufacturing Growth Limits NZD Demand

While market risk appetite largely improved the New Zealand Dollar came under renewed pressure overnight. After last week’s negative run of data NZD exchange rates have struggled to find any particular support. The signs of weakness in China’s manufacturing sector did not give the ‘Kiwi’ much cause for confidence either.

As long as the odds of a Reserve Bank of New Zealand (RBNZ) interest rate cut remain elevated the New Zealand Dollar is likely to remain biased to the downside.


Data Released

October 2nd 14:30 AUD Reserve Bank of Australia Rate Decision 1.50%
October 2nd 18:30 GBP Construction PMI (SEP) 52.9
October 2nd 19:00 EUR Eurozone Producer Price Index (YoY) (AUG) 3.8%

Post by TorFX

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