Global Themes

Manufacturing data sets the tone for a busy week

  • A day of manufacturing data provides insight into economic performance
  • Rand flops as South Africa cut to 'junk' rating
  • EU unemployment falls to lowest level since 2009
  • No change to the official cash rate today at the RBA's monthly meeting

Manufacturing

A day of manufacturing data provides insight into economic performance
Yesterday market participants scrutinised manufacturing data releases from China, the EU, the UK and the US, providing key insights into the performance of each economy.

Over the weekend we witnessed the Chinese manufacturing index expand at its fastest pace in nearly five years, encouraged by trade growth in Europe, Japan, India, and most of Asia. Following China's report, the EU similarly released positive data indicating that the majority of the manufacturers surpassed expectations. However, reports from Spain revealed the country was Europe's lowest performer.

Following this, the UK released similarly low figures, setting the tone for the day as sterling continued to depreciate against other major currency peers. This decline in sterling was particularly evident against the US dollar, with a 0.7% drop in GBPUSD observed throughout the day’s trading.

This price action was supported by the US manufacturing figure, causing the dollar to strengthen further. US numbers have recently surprised analysts as the country continues to hit ambitious growth figures. Such strong numbers will also further the belief in growth under the Trump administration.

ZAR

Rand flops as South Africa cut to 'junk' rating
South Africa's rand weakened by 2%, hitting its lowest point in three months after the S&P Global Rating downgraded their credit rating to ‘junk’.

This shift to BB+ from BBB- (South Africa's lowest investment grade since 2000) has fostered a generally negative economic outlook. Analysts report that the increased risk is a result of President Zuma's removal of his finance minister last Thursday. Moody and Fitch have yet to cut their credit rating, but any further downgrade will undoubtedly put more pressure on the rand.

EU Unemployment

EU unemployment falls to lowest level since 2009
The Eurozone unemployment figures fell to its lowest levels in eight years in February, signalling a strengthening of its economic performance.

The region's unemployment rate fell to 9.5%, its lowest point since May 2009. Over the course of the past five years, reports have indicated that joblessness has fallen from 12% in 2012. The ECB's president, Mario Draghi, has repeatedly encouraged governments to implement policies that reduce structural unemployment, boosting the potential of growth. 

AUD

No change to the official cash rate today at the RBA's monthly meeting
This result meets the expectation of the market, with inflation still within target range. The Aussie dollar remains strong while concerns about household debt levels still remain.

It seems more than ever that a wide range of conflicting economic considerations exist, specifically around the need to boost economic performance but without stimulating asset prices.

We have seen the yield curve for medium and longer term bond rates flatten, offsetting some of the trend of 2016. Most significantly, banks have made upward adjustments to borrowing rates out of cycle to do some of the RBA’s work for them.




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