U.S. dollar highlights:
USD steady to start the Q4 as markets are wary of risk assets due to concerns of a global slowdown. Trade talks with China will continue next week and markets are optimistic a trade deal will be finalized soon. The ISM Manufacturing Purchase Manager’s Index dropped to 47.8 in September (from 49.1 previously in August and lower than expected 50.1 reading). This represented the highest month of contraction in the manufacturing sector since June 2009 (due to ongoing trade tensions with China). In addition, the Reserve Bank of Australia cut interest rates by 25bps (to 0.75%) and expressed concerns about job growth. Fears of other economies slowing is causing USD strength due to safe-haven status. USD will remain in a tight range until Friday’s unemployment report for September (expecting lower at 3.6%).
Canadian dollar highlights:
CAD weaker due to the July GDP report was flat at 0% (versus 0.1% expected). After expanding 0.2% in June, the economy stalled as oil prices also dropped. The mining, quarrying, oil and gas sectors all contracted following four consecutive months of expansion. The Bank of Canada will be under pressure to follow the Federal Reserve and cut interest rates to boost the economy. Meanwhile, the Manufacturing Index improved to 51.0 in September (from 49.1 in August). This represented the largest expansion since February. CAD direction will continue to be affected by crude oil prices and trade developments. All eyes on the trade deficit report available Friday.
EUR weaker (and a two-year low) after the manufacturing sector declined in September. German factories experienced their worst month since the financial crisis in 2008. The manufacturing Index reading was 45.7 (slightly higher than 45.6 forecast, but still the lowest since October 2012). Spain and Italy also showed a weaker than expected decline in manufacturing as both were below the 50 level of contraction. Meanwhile, Consumer Prices in the Eurozone increased 0.9% in September (versus 1.0% forecast). Trade war concerns and Brexit uncertainty is putting pressure on the European Central Bank to lower interest rates again next month when the new President Christine Lagarde replaces Mario Draghi.
British pound highlights:
GBP continues weaker after Ireland and the U.K. fail to resolve the border issue and create a new proposal. Prime Minister Boris Johnson will propose an amended Brexit to the European Union which will include new ideas that remove the Irish border insurance policy. Previous proposals failed to convince the European Union, and this was also the main issue stalling Brexit during previous leader Theresa May’s tenure. As a result, markets are preparing for either a no-deal Brexit or an extension of Article 50.