Daily Currency Update
Thursday’s dire UK Services PMI served to push back Bank of England (BoE) interest rate hike expectations and reduce demand for the Pound towards the tail end of last week. The British currency dropped to a four-month low against the US Dollar and fluctuated against the Euro. As Monday’s European session began the GBP/EUR pairing recovered some ground as German industrial production increased by less-than-expected on the month. With UK data lacking today Pound movement is likely to be limited but some fluctuations may occur as a result of global economic developments.
Although last week’s policy statement from the European Central Bank (ECB) led some investors to bet that additional quantitative easing is on the horizon, the Euro managed to rebound on Friday as carry trades were unwound ahead of the reopening of Chinese markets. This morning German industrial production data showed a greater-than-expected increase on the year but a lower-than-forecast monthly gain. If the Eurozone Sentix Investor Confidence gauge reveals the anticipated decline from 18.4 to 16.0 the Euro could lose ground against Sterling and the US Dollar as trading continues.
The US Dollar held up well in the face of a mixed Non-Farm Payrolls report on Friday. While the US economy was shown to have added considerably fewer-than-forecast positions in August the nation’s unemployment rate slid to 5.1% from 5.3% as the participation rate eased. The fact that the level of joblessness is now within the Federal Reserve’s target band was seen to support an interest rate adjustment taking place this year and the US Dollar gained accordingly. ‘Cable’ hit a four-month low before the weekend, although the Pound has staged a modest rebound this morning. US data is in short supply today but China’s latest trade figures could spark ‘Greenback’ fluctuations overnight.
With Friday’s US NFP report supporting Federal Reserve interest rate hike expectations, commodity correlated currencies like the Australian Dollar declined. The ‘Aussie’ edged lower still on Monday despite an improved Australian AiG Performance of Construction Index for August as Chinese stocks fell. The upcoming Chinese trade data is likely to be a source of Australian Dollar volatility.
New Zealand Dollar
The New Zealand Dollar followed its Australian relation lower on Monday as the Chinese stock market took another hit. Assurances from local authorities did little to ease concerns and the Shanghai Composite index lost- 2.6% on opening. The ‘Kiwi’ was also trending lower as a result of speculation that the Reserve Bank of New Zealand will issue an interest rate cut at this week’s policy meeting.
Friday’s Canadian employment numbers initially drove the ‘Loonie’ lower as the data showed an increase in the unemployment rate (from 6.8% to 7%) in spite of the nation adding 12,000 positions in August. While the Canadian Dollar was able to recoup losses against the Pound before the weekend, Chinese stock shifts have seen the currency fall this morning.
South African Rand
With the head of the South African Reserve Bank (SARB) stating over the weekend that he wouldn’t take action to defend the Rand, the emerging-market currency softened against peers like the Pound and US Dollar this morning. Tomorrow’s South African Business Confidence data for the third quarter may cause additional Rand weakness, particularly as the measure is expected to fall from 43 to 39.46.