Australian Dollar Weighed Down By Weak Manufacturing Data

Australian Dollar Weighed Down By Weak Manufacturing Data - Australian Flag in a Shape of the Country
Bill Cascade   NEW 25/09/2019 00:00:00 Forex

The Australian Dollar continued to lose ground against the US dollar as a series of weak economic data continued to hurt its sentiments in the market. The currency was down to 0.6770 after reaching a daily high of 0.6781 against the dollar in Monday trading session.

Slowing Manufacturing Sector 

The slide came hot on the heels of the manufacturing PMI coming worse than expected at 49.4. However, the Services index showed signs of improvement edging higher to 52.5 from 49.1. Weakness in the manufacturing sector for the first time since 2016 is a development that is likely to continue weighing down the Australian Dollar. 

A slowdown in Australian manufacturing echoes similar developments around the world as the global economy continues to show signs of contraction. Economists are already warning that the manufacturing sector could remain under pressure given the U.S.-Sino trade dispute that is hurting global demand. 

While the AUD/USD looks set to continue trading in a tight range, things could change as soon as the U.S. reports its manufacturing data. The greenback remained resilient last week even as the FED moved to trim the benchmark rate. The PMI data could, however, have a significant impact on the dollar strength, as it will paint a clear picture of the strength of the U.S. economy. 

While analysts expect the U.S. manufacturing activity to remain steady, improvement in the service sector could lead to further strengthening of the Dollar. Conversely, the Australian Dollar could come under pressure. As the AUD/USD, flirts with the 0.6774 level, faces strong support at the 0.6735 level on any sell-off, with immediate resistance seen at the 0.6800 handles on movements on the upside. 

The Australian Dollar should remain steady ahead of a speech by the governor of the central bank Phil Lowe. While the market expects a dovish tone after a weak jobs data underlined the need for a rate cut, a hawkish tone could strengthen the AUD.

“We think Lowe will provide a strong signal that the RBA is ready to cut rates again, endorsing our view for a 25bp cut in October. Any comments on the scope for an unconventional policy will also be critical for the market," said Tapas Strickland, a director of economics and markets at National Australia Bank in Sydney.

The US Dollar Strengthens

The greenback, on the other hand, continues to gain to the ground against other major currencies as investors turn to it for its safe-haven attributes.

Dismal business activity readings in the European Union saw equities record their worst day in a month. The result was a switch of attention to safe-havens as investors sought to caution their portfolios given the shocks in the market.

The Euro continued to edge lower against the Dollar plunging back to the 1.0966 level in Monday trading session. The plunge came on September PMI release coming worse than expected. 

The British Pound also remained under pressure hovering at one-week lows ahead of a much-awaited Supreme Court ruling on Boris Johnson move to suspend Parliament weeks before Brexit. The fact that the outcome of the ruling could have implications on the U.K. push to pull out of the E.U. should continue to have an impact on the Pound.

 

 

 

 

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