US Dollar Succumbs to Further Deleveraging
Will the RBA Save the AUD?
NZD – Lifted by Stronger AU and Chinese PMI
CAD – Gold and Oil up 1.5%
Will the ECB Alter the Playing Field?
The British pound traded higher against the U.S. dollar and Euro following better than expected manufacturing PMI numbers. According to the latest report, manufacturing activity increased at a faster pace in the month of May and what made the numbers even more positive for sterling was the upward revision in April. Originally, a contraction was reported but now we learned that the sector grew slightly in the first month of the quarter. The third straight month of improvement should ease the concerns for the Bank of England who meets later this week. At this point, there is almost zero chance of a move by the BoE, which means that Thursday’s meeting will most likely be a non-event for the GBP/USD. While there may still be a bias for more stimulus, as long as the economy improves, there will be limited urgency.
The euro traded sharply higher today, breaking above 1.30 after U.S. economic data surprised to the downside. Perhaps the tides are shifting with European data improving and U.S. data deteriorating. As we have seen in yesterday’s Eurozone manufacturing PMI numbers, the outlook for Europe is brightening. The manufacturing sector did not contract as much as initially reported in the month of May.
The greenback fell aggressively after U.S. economic data surprised to the downside, giving investors more reason to reduce their positioning. Last Friday’s decline in U.S. stocks and the complete breakdown in Japanese equities have made investors nervous. The breakdown in the greenback drove USD/JPY below 100, the EUR/USD above 1.30 and the AUD/USD above 97 cents. No U.S. economic reports are scheduled for release today but the abundance of data expected tomorrow will keep the U.S. dollar in focus.
Over the next 24 hours, the Australian dollar will be a central focus for FX traders because of the Reserve Bank of Australia’s monetary policy announcement. The AUD staged a very strong rally against all major currencies today, rising more than 2% against the U.S. dollar and over 1% against the euro. Better than expected Australian and Chinese data played a large role in the currency’s rally but U.S. dollar weakness drove the AUD/USD above 97 cents.