Daily Currency Update
Thursday’s British economic data produced yet more disappointing results which caused the Pound to slump versus its major peers. The UK Services PMI came in at 55.6 in August, failing to meet with the median market forecast rise from 57.4 to 57.7. With services, construction and manufacturing data all failing to meet with expected growth, it was unsurprising to see the Composite PMI drop from 56.6 to 55.6. With a lack of influential domestic data on Friday, the Pound is likely to see movement as a result of fluctuations in the wider currency market, but continue to trend in a weak position.
In the early stages of Thursday’s European session the shared currency strengthened versus its major peers thanks to positive results from domestic data. However, the gains were short-lived after the European Central Bank (ECB) held the cash rate and President Mario Draghi made a dovish accompanying speech. Draghi stated that the ECB had downgraded expectations for growth and inflation through to 2017. This was due to falling commodity prices and the resultant lack of inflationary pressure. Draghi also announced a revamped quantitative easing program as Eurozone officials will now be able to purchase a larger proportion of Euro-area debt. On Friday morning, however, the single currency recovered some of its losses amid dampened market sentiment.
US data produced mostly positive results on Thursday which allowed the US Dollar to advance versus many of its currency rivals. Of particular significance was the Non-Manufacturing Composite for August which bettered the market projection of a drop from 60.3 to 58.2, with the actual result only falling to 59.0. Friday’s US labour market data will be of significance and is thought to be the most important US data ahead of the Federal Reserve interest rate decision. Change in Non-Farm Payrolls is predicted to reach 217,000 and August’s Unemployment Rate is forecast to drop from 5.3% to 5.2%.
Despite the fact that China has closed markets until Monday for a national holiday, risk sentiment has not improved. With continued speculation that China’s economic slowdown will have far-reaching consequences, and with many analysts confident that the Fed will hike the cash rate within 2015, demand for the South Pacific asset has waned significantly. With an absence of data on Friday to provoke changes, the ‘Aussie’ (AUD) is likely to continue trending lower as the European session progresses.
New Zealand Dollar
Similarly to that of its closest neighbour, the New Zealand Dollar declined versus most of its peers thanks to damp market sentiment. Positive data out of the US is also weighing on ‘Kiwi’ (NZD) gains. Much like its Oceanic counterpart, a complete absence of domestic data should see the Oceanic currency hold losses throughout the European session.
With oil prices continuing to fluctuate, the Canadian Dollar softened versus many of its peers. Aiding the depreciation is speculation of a near-term Fed rate hike which would widen policy divergence between the Fed and the Bank of Canada (BOC). Later on Friday, Canadian Net Change in Employment and Unemployment Rate have the potential to provoke changes for the commodity-correlated asset.
South African Rand
Fed rate hike prospects and generally damp market sentiment caused the South African Rand to decline versus most of its major peers during the early stages of Friday’s European session. With a complete absence of domestic data, Rand movement will be subject to changes in trader risk-appetite and US Dollar positioning.