US Dollar Muted as Manufacturing Sector Loses Momentum

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  • AUD Exchange Rates Weaken in Response to Market Risk Aversion – Consumer confidence continues to ease
  • US Dollar Loses Some Strength After Disappointing Manufacturing Index – US economy shows signs of easing momentum
  • Decline in UK Business Optimism Fails to Weigh Down Pound Sterling – GBP exchange rates remain vulnerable to Brexit jitters
  • Markets Brace for Imminent BOC Interest Rate Hike – Canadian Dollar holds steady ahead of policy announcement

Australian Dollar Softens on Global Geopolitical Tensions

A general decline in market risk appetite dragged the Australian Dollar down across the board yesterday as geopolitical tensions weighed on investor sentiment. Comments from Reserve Bank of Australia (RBA) policymakers failed to offer AUD exchange rates any encouragement, meanwhile, as the prospect of an interest rate hike appears increasingly distant. Coupled with a decline in the ANZ Roy Morgan weekly consumer confidence index this left the ‘Aussie’ lacking in support, even in the face of weak US data.

Unless market sentiment recovers the Australian Dollar looks set to extend its losses today.

Pound Shrugs Off Underwhelming Business Optimism

While October’s CBI business optimism index slumped sharply from -3 to -16, falling significantly short of forecast, this failed to dent the Pound. GBP exchange rates clawed back some of their recent losses over the course of the day as worries over Brexit temporarily eased, with investors instead focusing on other sources of geopolitical tension. Although this large decline in business sentiment is likely to weigh on economic momentum in the months ahead investors largely ignored the data.

If the latest mortgage approvals data also disappoints, though, this could leave the Pound vulnerable to renewed downside pressure.

Euro Under Pressure After European Commission Rejects Italian Budget

The mood towards the Euro remained bearish overnight as the European Commission opted to reject the Italian government’s 2019 budget plan. While this decision was widely expected investors were not encouraged by the development, with Italian officials sticking by their target of a 2.4% budget deficit. As the dispute looks set to rumble on over the next three weeks this left EUR exchange rates on the back foot, in spite of a better-than-expected Eurozone consumer confidence index.

However, a solid showing from October’s Eurozone manufacturing and services PMIs may help to shore up the single currency this evening.

Weaker Manufacturing Index Limits US Dollar Appeal

Confidence in the US Dollar took a knock last night after October’s Richmond Fed manufacturing index fell short of forecast. As the index dipped from 29 to 15, suggesting that momentum within the manufacturing sector is easing, the appeal of the US Dollar weakened. While this is unlikely to alter the policy outlook of the Federal Reserve the sign of softening growth still weighed on USD exchange rates. Even though market risk appetite faded in response to global geopolitical tensions this failed to offer the safe-haven USD any particular support.

As forecasts point towards a decline in new home sales in September the US Dollar may face further selling pressure overnight.

Canadian Dollar Steady in Anticipation of BOC Interest Rate Hike

As expectations built ahead of the Bank of Canada’s (BOC) October policy decision the Canadian Dollar saw limited movement against the majors. With investors awaiting another interest rate hike CAD exchange rates managed to shake off much of the day’s sense of risk aversion. Sliding oil prices did little to support the commodity-correlated Canadian Dollar, meanwhile, after Saudi Arabia noted its ability to increase oil exports to counterbalance a fall in Iranian supply.

If the BOC delivers a less hawkish interest rate hike tonight demand for the Canadian Dollar is likely to ease.

Risk Aversion Keeps NZD Exchange Rates Down

The general decline in market risk appetite left the New Zealand Dollar on the back foot yesterday. As investors continue to weigh up the prospect of the Reserve Bank of New Zealand (RBNZ) cutting interest rates there has been little incentive to favour the ‘Kiwi’ this week. With global trade tensions looking set to persist for some time to come NZD exchange rates remained under pressure.

Ahead of tomorrow’s raft of New Zealand trade data, however, any New Zealand Dollar gains are expected to prove limited.

Data Released

October 24th 19:00 EUR Eurozone Manufacturing PMI (OCT P) 53
October 24th 19:00 EUR Eurozone Services PMI (OCT P) 54.5
October 24th 19:30 GBP BBA Loans for House Purchase (SEP) 39,000
October 25th 01:00 CAD Bank of Canada Rate Decision 1.75%
October 25th 01:00 USD New Home Sales (MoM) (SEP) -0.6%

Post by TorFX

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