Chinese Growth Slowdown Drags Australian Dollar Lower

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  • Chinese Economic Slowdown Dents Australian Dollar – Global growth looks set to ease as China loses momentum
  • Brexit Deadlock Limits Pound Demand – Markets see limited chances of success for Theresa May’s Brexit ‘Plan B’
  • Contracting German Producer Prices Weigh on Euro – Inflation shows fresh signs of faltering ahead of ECB meeting
  • Canadian Dollar Eases in Spite of Oil Improvement – Market risk aversion limits CAD exchange rate upside

Slowing Chinese Growth Weighs Down Australian Dollar

The mood towards the Australian Dollar soured yesterday as Chinese growth data failed to impress. As economic growth slowed to 6.4% on the year in the fourth quarter this raised concerns over the health of the world’s second largest economy. With Chinese growth slowing to its weakest pace in 28 years confidence in the global economic outlook diminished, as China has helped to shore up growth for some years. This naturally weighed heavily on the commodity-correlated Australian Dollar.

Without the support of market risk appetite AUD exchange rates could struggle to return to an uptrend today.

Pound Muted as Brexit Deadlock Continues

Speculation over Brexit continued to dominate the outlook of GBP exchange rates at the start of the week. Markets awaited the unveiling of Theresa May’s ‘Plan B’, in the wake of last week’s conclusive defeat of her initial deal. Even though the EU rejected the prospect of reopening talks on the subject of the controversial Irish backstop this was not enough to prompt a fresh slump for the Pound overnight.

Confirmation that UK average weekly earnings continued to outpace inflation in November may give GBP exchange rates a solid boost this evening.

Euro Stumbles as German Producer Prices Disappoint

December’s German producer price index data did nothing to improve the appeal of the Euro. Domestic price pressures weakened further than forecast in December, easing -0.4% on the month. This suggests that inflationary pressure within the Eurozone’s powerhouse economy remains muted, limiting the prospect of an improvement in the headline consumer price index. All in all, this is likely to give the European Central Bank (ECB) additional incentive to remain on hold this week.

Another decline in the German ZEW economic sentiment index may add to the softness of the Euro tonight.

Political Paralysis Continues to Weigh on US Dollar

While the general sense of market risk appetite weakened yesterday the US Dollar struggled to capitalise on the mood of investors. Even with the Chinese economy showing signs of strain the prospect of any imminent resolution to the US-China trade dispute remains limited. Ongoing political tensions in the US helped to limit the appeal of the US Dollar, meanwhile, as the partial government shutdown continued.

If safe-haven demand continues to increase, though, USD exchange rates could return to a stronger footing in the near future.

Rising Oil Prices Fail to Boost Canadian Dollar

A solid performance from the oil market failed to shore up the Canadian Dollar amidst a wider trend of market risk aversion. Demand for the commodity-correlated CAD eased in response to the latest Chinese growth data, with weaker Chinese production likely to impact the country’s demand for oil. Even the anticipated OPEC production cut was not enough to give CAD exchange rates a leg higher yesterday.

As forecasts point towards a fresh contraction in November’s Canadian manufacturing sales data the Canadian Dollar looks set to remain under pressure today.

Risk Aversion Limits New Zealand Dollar Demand

Global growth worries also weighed on the New Zealand Dollar, with investors already concerned by the outlook of the New Zealand economy. With the domestic economy already struggling to pick up momentum a global slowdown does not bode well for New Zealand’s outlook. This left the New Zealand Dollar under pressure, even in the face of a soft US Dollar.

An uptick in December’s New Zealand services PMI may encourage NZD exchange rates to push higher across the board.

Data Released

January 22nd 08:30 NZD Services PMI (DEC) 54.7
January 22nd 20:30 GBP Average Weekly Earnings ex Bonuses (3M/YoY) (NOV) -3.3%
January 22nd 21:00 EUR German ZEW Economic Sentiment Index (JAN) -18.3
January 23rd 00:30 CAD Manufacturing Sales (MoM) (NOV) -0.6%

Post by TorFX

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