Surprisingly Strong Manufacturing Sector Growth Boosts Australian Dollar

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Headlines

  • Australian Dollar Strengthened as Manufacturing PMI Leapt Higher – RBA maintains cautious policy outlook
  • German Retail Sale Contraction Dampened Euro Demand – Rising Eurozone inflation forecast to support EUR exchange rates
  • Trade War Worries Weighed on US Dollar Exchange Rates – Underwhelming US data limits USD potential
  • Weaker Dairy Prices Failed to Dent ‘Kiwi’ – NZD exchange rates benefit from softer US Dollar

Australian Dollar

In a rather positive sign for the Australian economy the manufacturing PMI surged from 57.5 to 63.1 in March, signalling robust growth within the sector. Investors were encouraged to pile back into the Australian Dollar in response, with confidence in the domestic outlook improving. However, the bullishness of the result was somewhat diminished by the less optimistic tone of the latest Reserve Bank of Australia (RBA) policy meeting. As policymakers maintain a rather cautious outlook this diminished the potential of AUD exchange rates.

However, as forecasts point towards a weakening in February’s building approvals figures the mood towards the ‘Aussie’ could soon sour.

Sterling

While the UK manufacturing PMI bettered forecast, showing a modest uptick on the month, this was not enough to send GBP exchange rates on a rally. The underlying details of the report were still somewhat underwhelming as growth in new orders fell to a nine-month low. With a significant degree of uncertainty still hanging over the UK economy now that the one-year countdown to Brexit has begun this left Sterling with rather limited support on Tuesday.

A weakening of the construction PMI may add to the bearishness of GBP exchange rates this afternoon.

Euro

A surprise -0.7% contraction in German retail sales on the month dented EUR exchange rates, undermining confidence in the outlook of the Eurozone’s powerhouse economy. Investors were similarly disappointed to find that the German and Italian manufacturing PMIs had been revised lower on the month. With the growth of the Eurozone manufacturing sector having slowed to an eight-month low the appeal of the single currency was naturally limited.

This evening’s Eurozone consumer price index data may offer the Euro a strong rallying point, though, providing that inflationary pressure shows fresh signs of building.

US Dollar

Worries over the possibility of a fresh escalation in trade tensions between the US and China put the US Dollar under pressure. As the ISM manufacturing index also fell short of forecast USD exchange rates were encouraged to trend lower against many of the majors overnight. Investors remain concerned by the Trump administration’s approach to trade, with confidence in the outlook of the world’s largest economy faltering once again.

A similarly disappointing showing from the ISM non-manufacturing composite index could leave USD exchange rates on a downtrend tonight.

Canadian Dollar

Reports that the US is now aiming to strike a deal on NAFTA within the next two weeks offered a fresh boost to the Canadian Dollar. While the risk of talks falling through persists this failed to keep CAD exchange rates from rallying strongly during Tuesday’s European session. Even so, these gains still look distinctly fragile if this latest bout of market confidence proves short-lived.

The latest US oil production data may well reverse the Canadian Dollar’s gains if signs point towards a continued build-up in oil stocks.

New Zealand Dollar

Another modest dip in the Global Dairy Trade price index was not enough to weigh down the New Zealand Dollar, even though the outlook for the dairy industry remains muted. This bullishness was largely the result of the general uptick in market risk appetite, in part driven by the weakening of the US Dollar. While confidence in the ‘Kiwi’ is still rather limited investor appetite for higher-yielding currencies kept NZD exchange rates on a generally stronger footing.

If the ANZ consumer confidence index shows an improvement on the month this should limit the downside potential of the New Zealand Dollar today.

Data Released

April 4th 08:00 NZD ANZ Consumer Confidence Index (MAR)
April 4th 11:30 AUD Building Approvals (YoY) (FEB) 0.3%
April 4th 18:30 GBP Construction PMI (MAR) 51
April 4th 19:00 EUR Eurozone Consumer Price Index Estimate (YoY) (MAR) 1.4%
April 5th 00:00 USD ISM Non-Manufacturing/Services Composite (MAR) 59.0

Post by TorFX

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