– China rate cut improves risk sentiment.
– Eurozone and UK PMI data is disappointing.
– US dollar trading lower vs commodity currency bloc but higher against Europe.
USDCAD: open 1.3562, overnight range 1.3549-1.3583, close 1.3576 , WTI $71.12, Gold, $2621.19
The Canadian dollar drifted higher overnight and is attempting to break through resistance to extend gains. The positive sentiment is due to external factors, mainly a rate cut in China and the promise of a economic update which may be the precursor to another Chinese fiscal and monetary stimulus package.
The Peoples Bank of China (PBoC) cut its 14-day repo rate from 1.95% to 1.85% which by itself is no big deal. However, in a rare move PBoC Governor Pan Gongshen said he will deliver an economic update which analysts suggests is the first step in a new stimulus package.
Asian equity traders were not overly impressed. Australia’s ASX 200 fell 0.69% and Hong Kong’s Hang Seng index closed with at 0.06% loss. Japanese markets were closed for Autumn Festival Day.
Oil prices remained on a firm footing due to rising tensions between Israel and the Iran-backed Hezbollah leadership of Lebanon.
EURUSD dropped sharply from 1.1168 to 1.1083 after Eurozone PMI data showed a larger-than-expected decline, with September’s figures also coming in weaker than anticipated. The data highlights a deepening downturn in the manufacturing sector, as Composite PMI dropped to 48.9 from August’s 51.0. This has increased the likelihood of a European Central Bank rate cut in October, with the odds rising to nearly 80% from 68% previously.
GBPUSD remained stable in Asian trading but later fell from 1.3323 to 1.3249 in Europe following weaker-than-expected PMI data. According to S&P Global Market Economist Chris Williamson, “A slight cooling of output growth across manufacturing and services in September should not be seen as too concerning, as the survey data are still consistent with the economy growing at a rate approaching 0.3% in the third quarter.” This reassurance helped GBPUSD recover to 1.3296 during early New York trading.
USDJPY experienced a rally before falling within a 143.34-144.45 range, with moves exaggerated due to the closure of Japanese markets.
AUDUSD advanced within a 0.6793-0.6837 range, benefiting from improved risk sentiment in Asia after the People’s Bank of China reduced its two-week repo rate. Support also came from expectations that the Reserve Bank of Australia would keep rates unchanged at its meeting tomorrow. Australian PMI data, however, was less impressive. S&P Global economists noted that in September, business activity growth remained sluggish following a strong start to 2024, with market-sector employment growing only slightly and inflationary pressures easing.
Canada’s New Housing Price index data for August is due while the US gets the second tier S&P Global PMI data.