Daily Currency Update
Although the UK’s government spending data printed fairly positively on Friday, with a surprising surplus of 1.3 billion Pounds being recorded, the Pound put on a dismal showing against the Euro and fell to a two-month low. Sterling fared slightly better against the US Dollar, although it failed to hold above a key psychological resistance level. With UK data lacking today further Pound shifts will be the result of global economic developments. Investors will also be looking ahead to Friday and the publication of the GfK Consumer Confidence Index and the UK’s second quarter growth data.
With demand for the Euro increasing due to Greece unlocking its third bailout and Friday’s Consumer Confidence index for the Eurozone improving by more-than-expected, the common currency was able to rally against a number of its peers. The Euro’s notable uptrend against the Pound was also the result of investors responding to the latest Chinese developments by unwinding carry trades. The worst manufacturing index for China for over six years also led some industry experts to push back their Bank of England (BoE) rate hike expectations, contributing to the Pound’s two cent decline. Tomorrow’s final second quarter growth data for Germany and the nation’s IFO Business Climate, Current Assessment and Expectations measures could push the Euro higher still if they print positively.
Federal Reserve interest rate hike expectations received another knock on Friday as the US Markit Manufacturing PMI slid from 53.8 to 52.9 in August. The gauge had been forecast for no change. While the Pound did climb above the 1.57 level against its US rival, Sterling fell back to 1.56 and is likely to continue trading in this range during a quiet data day. However, any remarks from Fed officials supporting the odds of a September rate adjustment have the potential to inspire a ‘Greenback’ rally.
The Australian Dollar was trading in the region of a six-year low against the Pound on Monday as investors responded to last week’s concerning Chinese manufacturing report and the latest turmoil in the nation’s stock market. Global slowdown concerns are likely to continue weighing on the ‘Aussie’ in the days ahead. However, if the prospect of prolonged growth issues in the world’s second largest economy lead the Fed to hint that borrowing costs could remain at record lows until the beginning or middle of next year, higher-risk currencies like the ‘Aussie’ may benefit.
New Zealand Dollar
As a new week of trading got underway, the New Zealand Dollar reversed Friday’s 250 pip gain against the Pound and softened against the majority of its counterparts. While the situation in China was largely responsible for the ‘Kiwi’s downtrend, the currency wasn’t helped by a speech given by the Deputy Governor of the Reserve Bank of New Zealand. Grant Spencer asserted that it would be a long time before the central bank even considered increasing interest rates and the implication that borrowing costs would remain on hold for some time to come kept the New Zealand Dollar under pressure.
Friday’s Canadian data may have printed well but global economic concerns counteracted any positive momentum inspired by the surprisingly strong retail sales figure or upturn in inflation. The ‘Loonie’ continued languishing in the region of a seven-year low against the Pound and extended declines against its British rival as markets reopened on Monday.
South African Rand
The Rand endured its most significant slide for four years on Monday as speculation surrounding the impact of the slowdown in China on global commodity prices depleted demand for the South African asset. Last week the Rand hit record lows against the Pound and today the currency softened to 14.07 against the US Dollar, another record low. Even if tomorrow’s South African Mining Production and GDP reports impress, the Rand is unlikely to enjoy much of an uptrend while Chinese fears persist.