After a rather weak Australian retail sales report overnight, the Australian dollar hit a fresh round of losses which took AUDUSD on almost “perfect” test of the 2014 low near 0.8660. Given the action of late, it’s hard to see what shores up the pair, save for weak US data over the coming days.
NZDUSD was under far less pressure as AUDNZD suffered a significant throwback after the recent rally. I still prefer AUDNZD higher if risk appetite weakens further from here. We've got a rather bearish setup in the S&P 500 on a technical basis, but have yet to see the confirming move lower.
Elsewhere, USDJPY managed to poke its head above 110, but found few buyers there as risk appetite in Asia was very weak in the wake of a rather weak close in New York yesterday. It does appear that the JPY’s negative correlation with risk appetite may be slipping a bit – still, give us a 2% sell-off in the US markets to test that theory more robustly.
The Chinese Manufacturing Purchasing Managers' Index was in line with expectations, though it doesn't feel like the market puts much faith in the accuracy of the official data points such as this one.
USDCAD pulled above 1.1200 for the first time since March on a very weak July GDP print. If the US data is strong through the end of the week, it’s tough to see what prevents the pair from testing above the 2014 high of 1.1278 and beyond to perhaps 1.1420, if we suspect this is a third wave situation and project from the previous wave (see chart below).
USDCAD 
Source: Saxo Bank
Elsewhere, the Norwegian Krone rallied powerfully as the central bank will purchase NOK for the first time (diverting oil export revenues to fund government spending) in October, to the tune of NOK 250 million.
This is positive for the NOK from a flow perspective, but negative for the currency in the bigger picture as it reminds us that Norway is tipping slowly toward smaller external surpluses from shrinking oil revenues and is not exercising fiscal discipline.
Looking ahead
The peripheral Eurozone PMI’s are up this morning as well as the final readings for France/Germany and the Eurozone as a whole. The UK September Manufacturing PMI due later today is one of the first interesting data points we've seen since the hubbub surrounding the Scottish independence referendum vote.
The US ISM manufacturing is also up later, with the 'should-we-care-should-we-not' dilemma of the ADP employment change as well. The market will be touchy around that latter figure given how far we have stretched with this USD rally, and given that employment data is so critical for the US Federal Reserve policy. Its chair, Janet Yellen, is falling all over herself to distance herself from responsibility for the course of monetary policy from here and pointing to incoming data as the guide to what will come next.
Of course, any ADP data reaction should have limited scope because the nonfarm payrolls change number on Friday is considered far more important, and the ADP number has often been a poor predictor.
Tomorrow’s European Central Bank meeting is about the details surrounding the nature and magnitude of the ECB’s purchase plans and whether Draghi can impress the market with the size of the potential asset purchase programme, and whether the market believes there are sufficient asset-backed securities to purchase.
Of course, if a central bank offers to buy something, plenty of banks will look to manufacture some of the product they are buying to pass along to the central bank. There is some chance that a particularly dovish ECB and particularly strong US data for this cycle could see one last climactic acceleration in the action to surprisingly low levels in EURUSD before a longer consolidation period sets in.
Economic Data Highlights
- Australia Sep. AiG Performance of Manufacturing Index out at 46.5 vs. 47.3 in Aug.
- Japan Q3 Tankan Large Manufacturing Index out at 13 vs. 10 expected and 12 in Q2
- Japan Q3 Tankan Large Manufacturing Outlook out at 13 as expected and vs. 15 in Q2
- Japan Q3 Tankan Large Non-manufacturing Index out at 13 vs. 17 expected and 19 in Q2
- Japan Q3 Tankan Large Non-manufacturing Outlook out at 14 vs. 18 expected and 19in Q2
- Australia RpData/Rismark House Price Index rose +0.1% in Sep.
- China Sep. Manufacturing PMI out at 51.1 vs. 51.0 expected and 51.0 in Aug.
- Australia Aug. Retail Sales out at +0.1% MoM vs. +0.4% expected and +0.4% in Jul.
Upcoming Economic Calendar Highlights (all times GMT)
- Norway Sep. Manufacturing PMI (0700)
- Spain Sep. Markit Manufacturing PMI (0715)
- Italy Sep. Markit/ADACI Manufacturing PMI (0745)
- France Final Sep. Markit Manufacturing PMI (0750)
- Germany Sep. Final Manufacturing PMI (0755)
- Euro Zone Sep. Final Manufacturing PMI (0800)
- UK Sep. Markit Manufacturing PMI (0830)
- UK Bank of England’s Fisher to Speak (1100)
- US Sep. ADP Employment Change (1215)
- Canada Sep. RBC Canadian Manufacturing PMI (1330)
- US Sep. Final Markit Manufacturing PMI (1345)
- US Sep. ISM Manufacturing (1400)
- UK Bank of England’s Forbes to Speak (1730)
- Australia RBA’s Edey and Ellis to Speak (2230)
- Australia Aug. HIA New Home Sales (0100)
- Australia Aug. Trade Balance (0130)
- Australia Aug. Building Approvals (0130)
- Australia RBA Annual Report (0515)