Surging Manufacturing Growth Shores up Australian Dollar

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Headlines

  • Robust Australian Manufacturing Sector Growth Boosted AUD – Australian Dollar vulnerable ahead of RBA meeting
  • Latest Brexit Comments Reversed Pound Gains – Confidence in domestic outlook continued to deteriorate
  • Second Quarter New Zealand Trade Failed to Recover as Far as Forecast – NZD exchange rates pressured by risk aversion
  • Euro Shrugged off Italian Ratings Downgrade – Italian finance minister plays down budget risks


Australian Dollar

Demand for the Australian Dollar picked up on Monday morning thanks to an unexpectedly strong uptick in August’s manufacturing PMI. As the index surged from 52 to 56.7 this encouraged confidence in the underlying health of the Australian economy, enticing investors to buy back into the ‘Aussie’. A modest uptick in the latest TD Securities inflation measure also benefitted AUD exchange rates, helping to overshadow some less than encouraging retail sales figures.

The Australian Dollar may struggle to hold onto a positive footing today, however, if the Reserve Bank of Australia (RBA) maintains a more cautious outlook at its September policy meeting.

Sterling

The mood towards the Pound deteriorated sharply at the start of the week as chief EU negotiator Michel Barnier noted that he is ‘strongly opposed’ to Theresa May’s plans for post-Brexit trade. With the odds of a no deal Brexit rising once again GBP exchange rates came under renewed pressure. A surprisingly sharp slowdown in the latest UK manufacturing PMI also dented Sterling, highlighting the fragile nature of the domestic outlook.

A similarly disappointing showing from this afternoon’s construction PMI could see the Pound shedding further ground against its rivals.

Euro

While rating agency Fitch opted to lower Italy’s outlook from stable to negative ahead of the weekend this was not enough to keep the Euro on a downtrend yesterday. Italian finance minister Giovanni Tria hit back against the decision, trying to assure investors that the budget will not be a cause for concern. This helped to limit the negative impact on EUR exchange rates, even as the finalised raft of Eurozone manufacturing PMIs for August confirmed a slight loss of momentum on the month.

Any uptick in the latest Eurozone producer price index data may offer the Euro an additional boost, indicating that inflationary pressure within the currency union remains elevated.

US Dollar

With US markets closed for the bank holiday on Monday the US Dollar saw some mixed results against its rivals. As trade tensions with China continued to escalate, with the Trump administration threatening fresh tariffs, a sense of global risk aversion helped to limit the downside potential of USD exchange rates. The latest developments in both Argentina and Turkey offered an additional boost to the US Dollar, meanwhile.

Tonight’s ISM manufacturing index is unlikely to dent USD exchange rates unless sector growth shows significant signs of weakening.

Canadian Dollar

After crunch US-Canada trade talks missed their deadline the appeal of the Canadian Dollar naturally softened. The potential collapse of NAFTA and threat of fresh US tariffs weighed heavily on CAD exchange rates overnight, suffering as the general mood of risk aversion prevailed. Although Brent crude continued to push higher, trending above US$78 per barrel, this failed to shore up the commodity-correlated Canadian Dollar.

Another strong showing from August’s Canadian manufacturing PMI may offer CAD exchange rates a rallying point tonight, though.

New Zealand Dollar

The second quarter New Zealand trade data failed to encourage any particular positivity for NZD exchange rates, even though the terms of trade showed a rebound on the quarter. As the data fell short of forecasts this dragged the New Zealand Dollar lower as export prices failed to grow as strongly as hoped. With risk appetite generally limited there was little support for NZD exchange rates yesterday.

If the Global Dairy Trade auction shows a fresh decline in prices this could increase the pressure on the ‘Kiwi’ tonight.


Data Released

September 4th 14:30 AUD Reserve Bank of Australia Rate Decision 1.50%
September 4th 18:30  GBP Construction PMI (AUG) 54.9
September 4th 19:00 EUR Eurozone Producer Price Index (YoY) (JUL) 3.9%
September 4th 22:30 CAD Manufacturing PMI (AUG) 57.1
September 5th 00:00 USD ISM Manufacturing Index (AUG) 57.6

Post by TorFX

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