Significant downside miss in US ISM data, plays into Fed's hands; stronger Chinese PMI data benefits NZD & AUD

By Jason Wong

Lots of data and lots of market reaction overnight. The net result is a weaker USD across the board, although losses have been modest except against GBP, which significantly outperformed.

GBP is up 1% to 1.3270 after earlier breaking through 1.33. UK PMI manufacturing data were much stronger than expected, another indicator that questions whether the economy has entered recession (yet).

No doubt the weaker pound has helped support the sector, but the question remains how the other 90% of the economy is faring. But with record short positions on GBP, short squeezes will inevitably happen until proof of recession is in the pudding.

GBP, and other currencies, got an added boost when the US ISM indicator significantly missed to the downside, showing its largest fall in two years and coming in sub-50. It plays into the hands of the dovish FOMC members and raises the hurdle for US employment data tonight to prompt the Fed into action. 

The damage to the USD might have been larger but data earlier in the night suggested a massive upward revision to earnings, so that unit labour costs rose at an annualised pace of 4.3% in Q2, up from 2.0%. USD indices are down in the order of 0.3-0.4% for the day.

The NZD and AUD were stronger during the local trading session, supported by the stronger than expected official China PMI manufacturing data. Stronger export volume growth for NZ and strong forward looking capex data in Australia aided the move.

However, both currencies came under some pressure on the US open with falls to 0.7228 and 0.7505 respectively. Strong recoveries ensued after the soft US ISM figures and now both currencies sit 0.5% higher for the day at 0.7280 and 0.7555 respectively.

EUR is back above the 1.12 mark, while JPY reacted least to the US data, with USD/JPY only down a touch for the day at 103.30.

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Daily exchange rates

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