Fx: Weak Oil, Manufacturing Affect Currencies
The Loonie was boosted this morning by the release of stronger-than-expected Canadian retail sales data for June.
Friday, August 21, 2015 - 00:00
Retail sales in Canada were 0.6% higher in June than in May, versus expectations for a 0.3% rise, the increase appearing to be price-driven, with sales volumes flat. Rising gas prices helped lift gasoline station sales 2.6%, while a 9.4% jump at appliance and electronics stores coincided with the start of regulations limiting the length of cellphone contracts in Canada.
USD/CAD was trading up slightly before the data, but slid 0.1% to 1.3072 directly after its release.
In a separate report, Canadian inflation advanced modestly in July, the CPI increasing 0.1% on the month and 1.3% year-on-year, while the Bank of Canada’s core rate was +2.4% year-on-year, as expected, and remains above the central bank’s 2% target.
Concerns over the health of the Chinese economy continues to dominate the financial markets, after the overnight release of China’s flash manufacturing PMI showed a decline to 47.1 from July’s reading of 48.2. This is the sixth consecutive decline in the index and we haven’t seen this kind of weakness out of China since the global financial crisis.
The gloomy data has sparked fears of a global slowdown and the upshot in the forex markets has been buying of safe-haven currencies, particularly the Japanese yen. USD/JPY fell 0.72% to 122.50 in early trading, EUR/JPY dropped 0.39% to 138.25, while USD/CHF declined 0.46% to 0.9542. Spot gold, another safe haven investment, rose 0.4%.
US manufacturing is also showing signs of weakness in the flash reading for this month, though it remains in expansionary territory. Markit’s manufacturing PMI slipped to 52.9, confounding expectations for a rise to 54.9 from July’s reading of 53.8. This is the lowest level signalled since October 2013 and much of the drag came from a slowdown in manufacturing output growth (a component that actually hit a three-month high in July), while the strength of dollar continues to pressure export sales. Markit’s senior economist Tim Moore said, ‘August’s survey highlights a lack of growth momentum and continued weak price pressures across the US manufacturing sector, which adds some fuel to the dovish argument as policymakers weigh up tightening policy in September.’
Manufacturing activity has historically shown a tight correlation to overall macroeconomic activity, and the weakness indicated in today’s PMI will stoke fears of a loss of momentum in US GDP. The ISM manufacturing report for August is released on September 1, along with the final reading of Markit’s manufacturing PMI, and should those reports confirm today’s indication, it would count strongly against the likelihood of a September rate hike.
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