Supply chain woes constraining growth

The ongoing impact of COVID-induced Asian factory shutdowns and the disruption caused by the container ship that blocked the Suez Canal plus a lack of HGV drivers have all combined to cause supply chain disruption right around the globe. There is no doubt that producer price inflation is feeding into consumer price inflation and we are seeing many countries report manufacturing constrictions due to these factors.

The use of semiconductors is ubiquitous across every electrical product, every car, every piece of manufacturing equipment et cetera, and the largest geographic area for the production of semiconductors is Asia, which has been hit hard by covid. It is highly likely we will continue to see shortages in technology production until manufacturing can catch up.

With this as the backdrop, it is perhaps not surprising to have seen consumer price inflation in the eurozone hit a 13 year high last month. Neither is it surprising that the UK manufacturing sector purchasing managers index fell for the 4th month in a row in August. We have to suspect that fuel shortages in the UK caused by a dearth of lorry drivers, will continue to put downward pressure on all commercial sectors. That is a worry for the pound.

GBP finds buyers at last

So the sideways trading we are seeing in GBP-based exchange rates is not at all surprising. Uncertainty will do that to a currency. The GBPUSD rate has bounced 1% from the lows we saw last week amidst news clips of queues and fighting at petrol stations. That rate sits at $1.3550 this morning.

Also, the GBPEUR rate has found a few GBP buyers. This pair tested €1.17 last week and is only a tad below that this morning, at €1.1680. The EURUSD rate fell a cent last week and is still at that same $1.16 level this morning.

NZ rate hike may be delayed after new lockdowns

I have to confess I expected the Australasian and Asian currencies to be weaker than they are but, for example, the GBPAUD is still holding on to AUD 1.8640 this morning; roughly where it spent the majority of last week. GBPNZD rate is a little stronger at NZD 1.9520 this morning but there are new pandemic-induced lockdowns in New Zealand and that may cause the Reserve Bank of New Zealand to delay the expected interest rate hike that was so widely anticipated up until Friday. The RBNZ meets on Wednesday and we will see the NZ business confidence index tonight.

One commodity-linked currency that is doing rather well is the Canadian Dollar. The GBPCAD rate is in a downward trend that started in the 3rd week of September. It sits at CAD 1.7115 this morning; down from CAD 1.7550 just two weeks ago. The factors of supply chain problems have forced commodity prices up and that benefits the exporters of those products. We will see Canada’s building permit data today and that should show that the domestic economy is not out of the woods yet. This CAD strength is largely externally driven.

USD strength could follow US factory orders data

The only other data of note today is US factory orders. It will be very interesting to see if supply chain problems are hampering the US as well. Oddly, if that is the case, safe haven buyers will strengthen the USD.

And the 4th of October is a good day to celebrate the entertainment industry. It is Buster Keaton’s Birthday, Kate Winslet’s Birthday, the date of the airing of the first Bond movie, ‘Dr No’, Breakfast at Tiffany’s was released on this date and so was Spartacus. But way…way…bigger than his is the fact that the BBC broadcast the first episode of Monty Python’s Flying Circus on this day in 1969. If I was going to air a new production, I think 4th October is just the day to do it.

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