A series of set-backs failed to dull the Australian dollar’s appeal overnight which built on yesterday’s post CPI and China PMI gains. Stronger than anticipated third-quarter CPI data breathed new life into the Australian dollar yesterday, and a subsequent bounce in Chinese manufacturing PMI confirmed the trend. While the rate of underlying inflation remains neatly within the RBA’s 2-3 percent target range, investors have pared expectations of a Melbourne Cup day interest rate cut. Bids for the Australian dollar also increased after yesterday’s preliminary manufacturing PMI. Manufacturing PMI rose to 49.1 in October from a previous 47.9 according to HSBC’s preliminary estimates. Although the index is still in contraction, it’s seen as another sign China’s economy is beginning to stabilize. While the RBA may categorize inflation pressures as transitory given the introduction of the carbon tax, it’s also apparent they now have less “scope” than previously thought. They may also acknowledge tentative signs China is stabilizing, in light of the strong data pulse from the region.
The Kiwi coat-tailed the Aussie higher for most of the session before taking over in the last hour, coinciding with the RBNZ policy decision which saw the overnight cash rate on hold at 2.5 percent. The ensuing statement showed no indication lower interest rates are on the agenda, noting “risks to the global outlook are more balanced.” The Kiwi is now leading a risk offensive against the greenback testing short-term resistance at 82 US cents, and Aussie dollar appears to be receiving residual support testing overnight highs of 103.5 US cents.
Nevertheless, risk trends abroad were hardly conducive to a risk rally with concerns from both sides of the Atlantic remaining play. Euro-Zone PMI releases kept the Euro under moderate pressure. Both German services and manufacturing PMI fell short of estimates, and Euro-Zone Composite fell deeper into contraction territory. Spain’s economic fortunes also continue to hang in the balance. According to central bank estimates, growth contracted by 0.4 percent in third-quarter from the previous quarter. Investors also appear to be growing impatient with Madrid’s apparent reluctance to request financial aid, considered a critical part of the equation needed to restore confidence in the broader Euro-Zone.
US markets managed to finish only moderately lower after Tuesday’s slide. The DOW and S&P500 close down 0.19 and 0.31 percent respectively. The health of corporate America remained a key concern for US markets, but recent losses across equities suggests markets have priced in further disappointing earnings – in turn, providing greater scope for upside surprises. The Markit manufacturing PMI rose to 51.3 in October from a previous 51.1. Economists had anticipated a slight larger rise to 51.5.