USD steady ahead of ISM manufacturing report

Key Movers

The OPEC meeting is thankfully finished but the Canadian Dollar has overnight retained its sensitivity to oil prices. NYMEX crude opens this morning around 45 cents higher at $57.90 so USD/CAD is around 25 pips down at 1.2880. Though US non-farm payrolls have been delayed until next week, Canada was of course at work whilst its southern neighbours were tucking in to the Thanksgiving turkey. The Canadian labour market report will therefore be released at 0830 local time this morning. After a 35,300 increase in employment in October, consensus looks for +10,000 in November with the jobless rate nudging down around one-tenth t0 6.2%. Simultaneously – and it’s never quite clear why statistical agencies do this – we’ll also get to see the monthly and quarterly GDP figures. Canada is arguably the global leader in producing a monthly snapshot of GDP. September is of course the final month of the quarter, so we’ll get to see the full Q3 numbers as well as the monthly ones. July was flat m/m whilst in August GDP edged down by 0.1%; the first m/m drop since October 2016. Consensus today is for a +0.1% m/m reading whilst the Q3 number should see a very sharp slowdown from Q2’s 4.5% annualized pace of growth.


The EUR has certainly had an up and down week. As well as the twists and turns of the German coalition talks, there has been conflicting data on inflation to absorb. On Wednesday the EUR rose due to higher German CPI. On Thursday morning European time it fell due to softer Eurozone CPI (driven largely by Italy) and just as it seemed likely to test the recent range low around USD1.1825, it promptly surged almost a full cent before ending the month at 1.1900; a net gain of around 250 pips from Halloween’s USD1.1650 close. It opens unchanged after a very quiet overnight session, the highlight of which were the manufacturing PMI numbers. These tend not to have the same potential for surprise as elsewhere in the world because so-called “flash estimates” are produced for the two biggest economies and the Eurozone itself around 10 days earlier. Recall that these estimates showed output growing at its fastest pace in 17 years. France and Germany together are estimated to comprise around 53% of Markit’s Eurozone total so it was no great shock to see a ‘final’ PMI figure of 60.1. This was the second-highest monthly reading in the history of this series which goes all the way back to 1998 (the highest ever was in April 2000 just before the US tech crash) market noted, “The upturn was again led by a solid core of Germany, the Netherlands and Austria, with growth accelerating to record highs in the latter two and to slightly below one in Germany. The Ireland PMI also posted one of its highest readings so far”. For foreign exchange markets, the report may have been very good, but it wasn’t really fresh news. EUR/USD opens unchanged at 1.1900 with EUR/CAD down 25 pips at 1.5320.


As the new month gets underway, GBP begins a touch softer than last night’s closing levels. This comes after a remarkable run higher which had seen it rise almost 4 cents against the US Dollar and 6 cents against the Aussie Dollar in the space of less than three weeks. Yesterday we wrote here that, “For the moment, the GBP seems only to want to hear good news, but with September’s highs for USD/GBP within touching distance, it may soon be time to question whether the recent strong rally has gone far enough”. Ahead of a potentially difficult weekend politically, that comment bears repetition. Over the last few days, all news has been viewed through the prism of a transitional post-Brexit arrangement for the UK post-March 2019 which would avoid the economic dangers of a so-called “cliff edge” two years after the triggering of Article 50. But, a combination of a Eurosceptic Conservative rebellion over a £50bn Brexit divorce bill and an Ulster Unionist Party who will not accept a hard border with England and Scotland certainly has the potential to halt and reverse the recent exuberance for the British Pound. If the DUP don’t like what’s being proposed, the Coalition Government will fail: the DUP exists only to protect the Union. The clue is in its’ name. Overnight price action in GBP suggests a degree of caution creeping in after the recent strong rally. GBP/USD is 30 pips lower at 1.3500 with GBP/CAD almost half a cent lower at 1.7395.


The Aussie Dollar had a pretty poor November as it became increasingly clear the RBA was in no rush to raise interest rates against a background of pretty soft growth in wages and a generally benign picture on inflation. The poor price action became somewhat self-reinforcing and on Thursday the AUD couldn’t rally even with a pretty solid set of Q3 capex numbers. It ended the month at USD0.7565 and AUD/CAD0.9760. Overnight we’ve had an update on Australia’s manufacturing sector. AiG’s PMI jumped 6.2 points in November to 57.3 and the index has now held above 50 for 14 consecutive months, the longest continuous expansion since 2005. All seven activity sub-indexes expanded in November, including very strong results for new orders and exports, two lead indicators that bode well on the outlook for activity levels in early 2018. By sector, the performance was not quite as spectacular with only five of eight industries expanding over the month. The report noted, ““Participants said demand from residential construction was tailing off in November. Other participants noted stronger demand for equipment, machinery and other inputs or Government projects and procurement, agriculture, renewable energy projects and the local leisure market.” AUD has pretty much flat-lined after the numbers, which itself is much-improved price action after a difficult month and thoughts turn now to next Tuesday’s RBA December Board meeting. AUD/USD opens in North America today at 0.7565 with AUD/CAD a touch lower at 0.9750.


After Thursday’s extremely weak business outlook report which sent the NZD sharply lower, there was some hope that the Q3 terms of trade numbers this morning might bring some respite. For those readers who didn’t have to suffer the joys of learning Economics, “terms of trade” measure the purchasing power of exports relative to imports. An increase is a good thing: it effectively raises domestic incomes. Overnight we saw that New Zealand's terms of trade hit a new record in the September quarter as cheaper petrol imports offset lower export prices, which have been buoyed by strong butter prices in recent months. The ToT increased 0.7 per cent in the three months ended September 30, its fourth quarterly gain, beating the previous high set in July 1973, Statistics New Zealand said. Export prices fell 1.9 per cent in the quarter, while import prices dropped 2.6 per cent. A pretty good set of numbers all round has given the Kiwi Dollar a very modest bit of support. NZD/USD jumped from 0.6820 to nearly 0.6840 when the numbers were published and has extended gains by a further 10 pips to 0.6850. but has since given back nearly all these gains to open in North America at 0.6825. NZD/CAD, meantime, is almost 20 pips higher at 0.8830.