Disappointing Manufacturing Index Performance Drags US Dollar Lower

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  • Threat of Further US Tariffs on Chinese Products Fails to Prevent AUD Gains – Weaker US Dollar boosts commodity-correlated currencies
  • IMF Warns of Negative Impact No-Deal Brexit Could Have on UK Economy – Pound continues to lack support against its rivals
  • USD Weighed Down as Empire Manufacturing Index Falls Short of Forecast – US economy shows fresh signs of vulnerability
  • New Zealand Dollar Shrugs Off Dip in Services PMI – Confidence in NZ economy remains fragile at best

Australian Dollar Shrugs Off Trade Worries

Although the Trump administration continued to double down on its protectionist trade rhetoric and the threat of tariffs this was not enough to prevent AUD exchange rates gaining ground at the start of the week. Worries over the potential escalation of the US-China trade spat failed to encourage a fresh bout of Australian Dollar selling on Monday. Disappointing US manufacturing data offered a boost to commodity-correlated currencies overnight as demand for the US Dollar weakened once again.

The release of the Reserve Bank of Australia’s (RBA) meeting minutes could put pressure on AUD exchange rates this morning if the mood among policymakers appears more dovish.

Sterling Lacks Traction After IMF Issues Fresh Brexit Warning

A modest improvement in September’s Rightmove house price index failed to rally significant support for the Pound yesterday. Market focus instead fell on the latest International Monetary Fund (IMF) health check on the UK economy. As the IMF assessed that the economy will suffer reduced growth in the event of a no-deal Brexit the report offered Sterling little cause for confidence. Theresa May’s ultimatum to Conservative MPs added to the bearish mood of GBP exchange rates, meanwhile, as the odds of the UK leaving the EU without a deal appeared to increase.

Worries over Brexit and its ultimate impact are likely to keep the Pound on a weaker footing today.

Underwhelming Eurozone Inflation Limits Euro Upside

Confirmation that the annual Eurozone consumer price index eased from 2.1% to 2.0% in August limited the support for the Euro. With inflation struggling to show sustained strength the chances of the European Central Bank (ECB) raising interest rates in the earlier half of 2019 remain distinctly slim. Comments from ECB policymaker Benoit Coeure were not enough to stir up any particular demand for the single currency, with markets largely dismissing his suggestion to implement forward guidance.

Greater volatility could be in store for EUR exchange rates this afternoon, though, as ECB President Mario Draghi speaks.

USD Exchange Rates Slump on Disappointing Manufacturing Index

September’s Empire manufacturing index proved weaker than forecast, dipping from 25.6 to 19 on the month. This left USD exchange rates on downtrend overnight as confidence in the underlying health of the US economy weakened. With the Trump administration still looking on course to impose fresh tariffs on Chinese exports the outlook of the manufacturing sector appears less positive. If the US economy continues to show signs of stress this could discourage the Federal Reserve from continuing to pursue interest rate hikes.

However, if market risk appetite falters this is likely to give the US Dollar a fresh bout of strength.

Weakening Housing Market Weighs on Canadian Dollar

As Canadian existing home sales saw a smaller uptick on the month in August the mood towards the Canadian Dollar remained largely sour yesterday. With the domestic housing market still showing signs of weakness confidence in the outlook of the wider economy diminished. This left CAD exchange rates under pressure against many of the majors, even as oil prices showed a solid recovery from Friday’s weakness.

A similar easing in manufacturing sales growth could see the Canadian Dollar extend its losses further tonight.

Easing Service Sector Growth Fails to Dent New Zealand Dollar

Although the New Zealand services PMI softened in August, easing from 55.1 to 53.2, NZD exchange rates continued to push higher. The sector remains in a solid state of growth in spite of this loss of momentum, suggesting that the domestic economy is still in fairly robust health. US Dollar weakness also helped to shore up the New Zealand Dollar yesterday as market risk appetite picked up.

If the latest Global Dairy Trade auction shows a fresh decline in prices this could weigh heavily on the appeal of NZD.

Data Released

September 18th 11:30 AUD Reserve Bank of Australia Meeting Minutes (SEP) 
September 18th 17:15 EUR European Central Bank President Draghi Speaks 
September 18th 22:30 CAD Manufacturing Sales (MoM) (JUL) 0.6%

Post by TorFX

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