AUD, NZD And EUR Are Hit Hard

The session started very well for the kiwi, after NZ GDP printed higher than expected during Q2. At the same time, the aussie and euro was largely holding its ground against the dollar. But it didn’t last. Manufacturing PMI data out of China proved to be the straw that broke the camel’s back for Asia’s main commodity currencies and the euro. In fact, NZD/USD erased all of its gains, AUD/USD came dangerously close to breaking 1.0400 and EUR/USD broke 1.3000, following the release of the PMI data.

Chinese PMI - not worse but not good
The flash Chinese manufacturing PMI data released by HSBC for September printed at 47.8, minutely better than August’s 47.6 number. Overall, the figure is not good enough to cast aside fears of a continued growth slowdown and not bad enough to force Beijing to open its war chest of stimulus options. Hence, it is almost a nothing figure, which is not a good thing for commodity currencies when markets are in their current jittery state.

Furthermore, Beijing continues to conduct reverse repo operations, which suggests a reserve requirement ratio (RRR) cut may not be directly around the corner. The logic is that if the PBoC is selling reverse repos then why would it also cut the RRR rate – they both do effectively the same thing, expect that a RRR cut is more long-term.

Overall, the news sent investors flocking to the safe haven status of the world’s reserve currency, USD. However, the push lower for AUD/USD, NZD/USD and EUR/USD was not strong enough to push them beyond the brink. In other words, NZD/USD and AUD/USD held above 0.8245 and 1.0400, respectively, and although EUR/USD broke through 1.3000, the pair didn’t penetrate a significant build-up of orders around 1.2990.

Japan’s exports continue to fall
Was 10 trillion enough? That is the question investors will be asking themselves after today’s trade balance data out of Japan. Whilst the percentage fall in exports was less than expected, it was the third straight month of declines. Furthermore, the figures aren’t expected to get better anytime soon. In fact, it is unlikely we will see a positive exports number this year.

Things are better in NZ
In New Zealand, a surprise 0.6% increase in GDP during Q2 (exp. 0.4%) helped spur some initial gains for the kiwi. The year-on-year figure now stands at +2.6%, compared with a prior increase of 2.4%. NZD/USD initially leapt around 75 pips higher on the back of the data, before succumbing to the Chinese PMI data later in the session.

Data watch
A slew of PMI data out the eurozone and a 10-year debt sale in Spain will dominate investor sentiment in Europe.

Japan Trade Balance Data

Source: FOREX.com, Bloomberg

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan.