Daily Currency Update
Wednesday's British data showed construction growth failed to meet with market projections. August's UK Construction PMI was predicted to advance from 57.1 to 57.5, but the actual result only reached 57.3. This caused the Pound to soften versus the majority of its currency rivals. As traders await the Services PMI, due for publication later on Thursday morning, the British asset continues to decline versus most of its currency rivals.
After the Chinese Government intervened in the equity market in order to end at a more satisfactory level for the national holiday, market sentiment improved. This caused dampened demand for the shared currency which softened versus many of its currency peers. Although China has now closed all markets until Monday, trader risk-appetite has withdrawn somewhat on Thursday morning amid speculation regarding a near-term Federal Reserve rate hike. The common currency strengthened versus most of its currency competitors in the early stages of Thursday's European session as traders prepare for the European Central Bank (ECB) rate decision. Most analysts agree that the ECB are unlikely to change policy at this time with so much uncertainty regarding China. However, there is some speculation that the central bank will downgrade its inflation forecast in the wake of China's economic slowdown and the resultant commodities price crash.
With market sentiment improving on Wednesday, the US Dollar softened versus many of its currency rivals. Mixed results from economic data added headwinds with lower-than-forecast Factory Orders weighing on demand. However, the US Dollar recovered losses into Thursday's European session after the release of the Federal Reserve Beige Book in the North American session. The publication highlighted continued expanding economic activity and was generally positive. This has renewed hopes that the Federal Reserve will have implemented the first small rate hike by December 2015. The ISM Non-Manufacturing Composite, due for publication during Thursday's North American session, has the potential to provoke Dollar volatility.
Although the 'Aussie' (AUD) advanced on Wednesday thanks to demand for high-yielding assets amid improving market sentiment, the uptrend was short-lived. A robust Performance of Service Index provoked a small Australian Dollar appreciation, but an unexpected contraction in July's retail sales overshadowed the services data. One of the main contributing factors to the 'Aussie' downtrend is mounting speculation that the Federal Reserve will kick-start a rate hike cycle before the close of 2015.
New Zealand Dollar
Much like its Oceanic neighbour, the 'Kiwi' (NZD) uptrend on Wednesday was short-lived after the release of the Fed Beige Book renewed hopes of a near-term rate hike. Although the Global Dairy Trade (GBT) auction saw volumes decrease in order to push prices higher, there is still much concern that the drop in demand from the world's second-largest economy will weigh on New Zealand's export growth.
Now that China has closed markets until Monday, volatility in oil prices has eased. WTI crude has settled just above $46 a barrel as the European session commences, causing the Canadian Dollar to strengthen versus its major peers. The 'Loonie' (CAD) appreciation has been somewhat sluggish, however, with fears regarding the divergent policy outlooks between the Bank of Canada (BOC) and the Federal Reserve. Many feel that the long-term drop in oil prices will cause the Canadian central bank to ease policy.
South African Rand
Although South Africa's Standard Bank PMI rose from 48.9 to 49.3 in August, the Rand declined versus most of its major peers during the early stages of Thursday's European session. The depreciation is the result of dampened market sentiment as the Federal Reserve looks to move ever closer to a rate hike. This will have a detrimental impact on emerging-market assets such as the South African Rand.