Private Capital Expenditure Contraction Weakens Australian Dollar

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Headlines

  • AUD Exchange Rates Slide After Surprise Contraction in Expenditure – Signs point towards weaker business optimism
  • Falling Eurozone Unemployment Shored up Euro Rates – Jitters likely to dent EUR ahead of Italian election
  • Bullish US Manufacturing Data Encouraged US Dollar Gains – Strong growth supports case for further Fed policy tightening
  • Canadian Dollar Supported by Robust Manufacturing PMI – Underwhelming gross domestic product may prompt fresh bearishness

Australian Dollar

As the fourth quarter private capital expenditure figure showed a surprise contraction the mood towards the Australian Dollar naturally soured. With businesses dialling back on spending this does not bode overly well for the economic outlook, pointing towards weaker growth in the coming months. This encouraged investors to pile out of AUD exchange rates once again, especially as the wider sense of market risk appetite continued to diminish.

Unless investor confidence shifts markedly ahead of the weekend the appeal of the Australian Dollar is likely to remain somewhat limited for the time being.

Sterling

While February's UK manufacturing PMI showed a smaller dip on the month than forecast this failed to offer much support to GBP exchange rates. Underlying details of the survey continue to highlight the fragile nature of the domestic outlook, with price pressures looking set to mount further. Even though the weaker-than-anticipated net consumer credit figure could give the Bank of England (BoE) incentive to raise interest rates the Pound remained under pressure, with Brexit jitters persisting.

Further volatility is likely in store for Sterling as markets brace for Prime Minister Theresa May's latest speech on the subject of Brexit.

Euro

Eurozone data turned a little more positive on Thursday, with the latest raft of Eurozone manufacturing PMIs remaining firmly within expansion territory. The Euro also received encouragement from Eurozone unemployment rate data, with December's rate unexpectedly revised down from 8.7% to 8.6%. All in all, signs continue to point towards a robustly healthy Eurozone economy, giving EUR exchange rates fresh cause for confidence in spite of the dovish outlook of the European Central Bank (ECB).

With anticipation mounting for the latest Italian election, though, the Euro may struggle to hold onto a positive footing in the near term.

US Dollar

Confidence in the US Dollar picked up further overnight as US data surprised to the upside. A sharp surge in the ISM manufacturing index boosted optimism in the outlook of the world's largest economy, indicating that growth is accelerating. This is likely to improve the case for the Federal Reserve to pencil in four interest rate hikes over the course of 2018, even though inflationary pressure continues to lag behind target.

Even so, after making such bullish gains on the back of increased Fed interest rate hike bets USD exchange rates remain vulnerable to the downside once this momentum starts to fade.

Canadian Dollar

A rather robust Canadian manufacturing PMI helped to support CAD exchange rates, even though sector growth weakened slightly on the month. Confidence in the underlying health of the Canadian economy improved somewhat on the back of the solid PMI result. However, as the US crude production rose to its highest monthly level in forty-seven years in February the weakness of the global oil market remains a significant headwind for the Canadian Dollar.

Any softening in tonight's gross domestic product data could see CAD exchange rates trending bearishly.

New Zealand Dollar

The New Zealand Dollar found a boost as the fourth quarter terms of trade index bettered forecast, picking up by 0.8% rather than 0.5%. This improvement naturally prompted NZD exchange rates to strengthen, even though worries over the domestic outlook nevertheless remain. Persistent USD bullishness and a general decline in market risk appetite was not enough to prevent the 'Kiwi' pushing higher against some of its rivals yesterday.

If New Zealand building approvals contracted further on the month in January the New Zealand Dollar may lose its steam, however.

Data Released

March 2nd 07:45 NZD Building Permits (MoM) (JAN)
March 2nd 17:00 EUR German Retail Sales (YoY) (JAN) 3.3%
March 2nd 19:30 GBP Construction PMI (FEB) 50.5
March 2nd 23:30 CAD Gross Domestic Product (YoY) (DEC) 3.4%
March 3rd 01:00 USD University of Michigan Consumer Sentiment (FEB F) 99.5

Post by TorFX

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