Chinese concerns and building approvals drop shrugged off by AUD

After yesterday’s stronger-than-expected Australian GDP growth it was a surprise to see a slump of 8.1% in building approvals reducing Australia’s trade balance to just over 8 billion in July. However, when you look beyond Australia’s borders, data from elsewhere paints the picture for the whole Asia/Pacific region. As well as the growing concern over China’s property market, Chinese data this morning showed a drop in activity on both the import and export markets; not quite as dramatically weak as the previous month but the August data managed to bring down China’s trade surplus as well. That surplus is still at 68.36 billion US dollars, so I don’t think there’s any chance China is going broke just yet. What this means for the GBP/AUD rate is more a reflection of poor UK data this morning because this pair is down to AUD 1.9540, wiping out all the gains sterling has made over the last two days. There is no tier-one data due for release for the rest of the week but next week brings UK and Australian employment data plus a smattering of other numbers.

ISM beats forecast

In the US, the Institute of Supply Managers Non-Manufacturing Index bounced in August to 54.5; the best reading since March. That appears to be largely due to improved employment prospects and the fact that inflation is slowing. We will see US productivity numbers today as well as the release of the Federal Reserve’s Beige Book, which provides a regional view of the state of the US economy. There will also be a number of speeches by Federal Reserve members throughout the day. So, there is every possibility we will see significant US dollar volatility. Right now, the GBP/USD rate has dropped to $1.2465, its lowest ever since June. The EUR/USD rate has followed a similar path. At $1.0705, this is also one of the lowest levels we’ve seen since June. We will see significant European data today but more of that below.

Eurozone growth slowdown predicted

This morning will see the release of provisional second-quarter economic growth data for the eurozone. The markets are expecting quarterly growth of 0.3% but a fall in the annualised rate from 1.1% in the year to March, down to 0.6% in the year to June. As if to underline the market concerns this morning’s German industrial production data showed a larger-than-expected drop of 0.8% in July. That is a slight improvement on the 1.4% contraction we saw in the previous month but the markets were looking for less depressing data than that. Sterling has been knocked this morning by a sharp drop in the Halifax house price index. At -4.6%, that is the largest contraction since 2010. Understandably, it caused a flight reaction amongst traders and investors with regard to the pound. So the GBP/EUR rate is down to€1.1630 this morning and, as mentioned above, Dollar strength has brought the EUR/USD rate down to $1.0705.