Commodity Dollars Weak on Chinese PMI Contraction, USD Awaits ISM

Published: 1 Aug at 11 AM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China, Germany,

Pound Sterling
Signs of a strong shock to the UK’s economy from the ‘Brexit’ vote have continued to materialise to weaken the British Pound today. The finalised Markit manufacturing PMI for July has been revised lower, with the index cut to 48.2 from earlier estimates of 49.1. The manufacturing index had initially been the only July PMI to escape the worst of the post-Brexit contractions, but the revised figure shows the sector declined at a pace more in line with the services and composite indices. With markets expecting policy easing from the Bank of England (BoE) during Thursday’s meeting, Pound Sterling risks remain to the downside over the coming days.

Euro
The Euro has been left uncertain today by the results of Eurozone bank stress tests, which were published on Friday evening. While the results showed that Eurozone banks are generally better capitalised and able to weather the shock of a severe downturn, the overall picture of the banking sector remained cloudy. Today’s PMIs have also added to investor uncertainty; the revised figures show a smaller slowdown in growth in Germany and the Eurozone than was expected, but other member states remain weak. Another run of PMIs on Wednesday, as well as Eurozone retail sales figures, could help provide a clearer direction for the Euro.

US Dollar
An approaching ISM Manufacturing index is curbing US Dollar gains today. After Friday’s weak US GDP figure, markets are widely expecting a softening in the index. Only a -0.2 point decline to 53 is expected, but given the underperformance of recent data, there’s a chance the result could be worse. The US Dollar is likely to react bearishly to any weakening in the data as the prospect of a rate hike disappears even further into the future. Friday’s GDP results have already seen traders push back the next rate hike until after July 2017, with the prospect of a rate cut creeping back into the mix from the beginning of the year.

Australian Dollar
The commodity Dollars are weak after an unexpected, if marginal, contraction in Chinese manufacturing during July. Predicted to remain in stagnation territory, with a reading of 50 showing no sectorial growth last month, the index actually weakened a fraction to 49.9. Although a very minor movement into contraction territory, the result has nonetheless unnerved investors and caused the Australian Dollar to slump, despite positive domestic data. Australia’s own manufacturing PMI jumped from 51.8 to 56.4.

New Zealand Dollar
China’s unexpected manufacturing contraction is weighing on the New Zealand Dollar today, although not to the extent of its commodity peers, allowing NZD to make strong gains verses AUD and CAD. However, the New Zealand Dollar may remain bearish ahead of tomorrow’s high impact data slew. As well as the Reserve Bank of New Zealand (RBNZ) 2-year inflation expectation, NZD faces pressure from the latest GlobalDairyTrade auction and unemployment data.

Canadian Dollar
With no domestic data released today, the remaining headwinds from Friday’s poor GDP figures and further weakness in the oil market, the Canadian Dollar is unsurprisingly on the downtrend. After making a small recovery over the weekend, crude is once again posting significant declines. Another week like the last one would see WTI and Brent likely falling below US$40 per barrel, so investors are justifiably bearish on CAD at the present.
As of Monday, 1st August 2016, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1807, GBP USD exchange rate was 1.3185, GBP AUD exchange rate was 1.7517, GBP NZD exchange rate was 1.8396, GBP CAD exchange rate was 1.7304, and GBP CNY exchange rate was 8.7599.

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