Headlines
• UK Service Sector Flops –
Sterling broadly softens
• Fed Rate Bets Pushed Back –
EUR/USD gains
• RBA Leaves Rates on Hold –
‘Aussie’ supported
• TPP Trade Deal Boosts Commodity Currencies –
CAD, NZD advance
Sterling
As a new week of trading began Sterling swiftly softened against peers like the Euro and trimmed previous gains against the US Dollar as investors responded to the UK’s latest service sector report.
The Markit Services PMI revealed the softest increase in activity for almost two and a half years in September, with the gauge printing at 53.3 instead of the 56.0 expected by economists.
The data has led some industry experts to bet that the Bank of England (BoE) will adopt a cautious tone at this week’s policy gathering, with the vote on whether or not to increase borrowing costs potentially returning to an undivided 9-0.
If that proves to be the case the Pound could dip to fresh multi-month lows against the Euro before the weekend. This morning’s Halifax House Price report revealed an unexpected -0.9% month-on-month decline in property values in September, leaving the Pound down slightly against the common currency but holding steady against the US Dollar.
Euro
With Friday’s dismal US Non-Farm Payrolls report depleting demand for the US Dollar while driving the Euro higher, the common currency enjoyed a strong start to the week.
The Euro remained resilient in spite of final Services PMIs for the Eurozone and Germany being negatively revised and the Sentix gauge of investor confidence revealing a decline in sentiment.
This morning Germany’s Factory Orders report detailed a surprising -1.8% drop in August – a 0.5% gain had been anticipated. However, the data’s impact on the Euro was limited ahead of the publication of Retail PMIs for Germany, France and the Eurozone as a whole. Germany’s Construction PMI also impressed by rising from 50.3 in August to 52.4 in September.
US Dollar
On Monday demand for the US Dollar remained limited in the wake of Friday’s US Non-Farm Payrolls report. With the ecostat disappointing on all fronts, investors felled the odds of an October rate adjustment to just 10% and now see a less than 50% chance of a rate revision taking place before the end of the year.
The ‘Greenback’ derived little support from yesterday’s domestic releases, with the ISM Non-Manufacturing Composite measure falling from 59.0 to 56.9 and the Labour Market Conditions Index easing from a negatively revised 1.2 to 0.0 last month.
If the week’s remaining US figures, including today’s trade balance numbers, continue having a negative impact on US rate hike expectations the US Dollar’s downtrend may well persist.
The successful negotiation of the Trans-Pacific Partnership trade deal bolstered commodity-driven currencies on Monday and the Canadian Dollar posted widespread gains. As well as advancing to its strongest level against the Pound since July, the ‘Loonie’ was able to climb above 76 cents against the US Dollar.
However, if today’s Canadian Ivey Purchasing Managers Index reveals the decline from 58.0 to 54.0 predicted by economists the Canadian Dollar may not hold the higher ground for long.
With the TPP deal supporting commodity-correlated currencies and the odds of the US increasing borrowing costs before the end of the year falling, the Australian Dollar was able to weather a disappointing domestic trade report and hold previous gains against its major rivals during the Australasian session.
The ‘Aussie’ was then able to extend its advance as the Reserve Bank of Australia (RBA) opted to leave interest rates on hold at its October meeting. The central bank also avoided adopting a dovish tone and the prospect of Australian borrowing costs remaining steady for the foreseeable future sent the GBP/AUD pairing to a low of 2.1250.
New Zealand Dollar
While the New Zealand Dollar dipped against its Australian counterpart following the RBA’s policy statement, the South Pacific currency remained trending higher against a number of its other peers.
Both the TPP deal and current speculation surrounding US fiscal policy are keeping the ‘Kiwi’ elevated so the currency was largely able to shrug off a disappointing domestic report. The NZIER Business Opinion Survey for the third quarter printed at -14, down from 5 in the second quarter.
Data Released Today
09:10 EUR Markit Eurozone Retail PMI (SEP) – Medium
09:10 EUR Markit Germany Retail PMI (SEP) – Medium
13:30 USD Trade Balance (AUG) – Medium
13:30 CAD Ivey Purchasing Managers Index (SEP) – Medium