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December 2015

Daily Currency Insight

Published: Wednesday 02 December 2015

  • Weak ISM signals nervousness over rate hike
  • Canadian economy shrank by 0.5% last month
  • Aussie GDP Stronger than expected
Sterling weakened yesterday on weaker than expected manufacturing data. UK manufacturing PMI's fell to 52.7 in November from 55.5 previously. Although it is still in positive territory the slowdown in manufacturing is of course a concern and the latest report will dampen optimism over the country's economic outlook. Sterling is still hovering ahead of the 1.5000 level as traders look towards today's construction PMI's for near term direction.
 
Manufacturing data in the United States also disappointed yesterday as the ISM came in at a 6 year low at 48.6 down from 50.1 in October.  Manufacturing is only a very small component of US GDP and the weak ISM data will probably not deter the Fed from raising rates in December. However  the headline figure falling into contraction territory only highlights the headwinds facing the sector which include a stronger dollar and falling oil prices. Although a hike is almost certain, policy makers could temper expectations of further cuts with a dovish message. Today's ADP and tomorrow's non-manufacturing ISM will be very closely watched.
 
Overnight Australian Q3 GDP beat expectations by rising 0.9%. The rise occurred despite a slowdown in its biggest trading partner, China and although the RBA left rates on hold yesterday perhaps the market has downplayed the chances of rate cuts in 2016. Governor Stevens acknowledged that the expansion was above the RBA's expectations. For now the Australian dollar is on the ascendancy but if the data continues to improve then rate cuts may well be back on the table.
 
It was reported that Canada's economy shrank by 0.5% last month which is the worst monthly outcome since the recession. It would seem that the economy is losing momentum with Q4 growth now expected at 1%. The BOC meets today and while it is unlikely that there will be an interest rate cut today, a sluggish fourth quarter could increase the chances of a move early next year.