On Friday the AUD was the weakest performer, while the NZD/USD also drifted lower. The JPY outperformed.
On Friday the largest move in currencies was the 1% decline in the AUD/USD.
In the early afternoon the currency gapped lower after the disappointing China Manufacturing PMI release. It showed manufacturing activity slipping further into contraction. The currency then stabilised overnight. But it still managed to end the week at 0.7280, its first time below 0.7300 since May 2009.
The NZD/USD, to a lesser degree, was also impacted by the China data release. The NZD/USD dropped from 0.6620 to end the week below 0.6580. It now sits at the level where it traded prior to Thursday morning’s RBNZ meeting.
The boost to the currency, from the RBNZ’s rhetoric being less dovish than some market participants had hoped, has proven temporary.
Attention has returned to fundamentals where the outlook for NZ’s primary commodity export, dairy, still looks fairly dire. We continue to target 0.6200 for the NZD/USD by year-end.
Interestingly, CFTC data released on Friday (to Tues 21 July) showed that speculative short positions in NZD had been reduced ahead of the RBNZ meeting. From a record short of 19.7k, positions had been pared to 16.9k.
On Friday night, Eurozone PMI data were marginally below expectation but generally remained in expansion territory i.e. above the 50 level. The EUR/USD touched intra-night lows below 1.0930 around midnight, but grappled its way higher into the close as the USD softened. The earlier upward momentum in the USD appeared to run out of steam after a disappointing US new home sales release.
Tonight, focus will be on the German IFO business survey for July. It will be interesting to see if sentiment was impacted by the fraught negotiations with Greece that were taking place earlier this month.
US durable goods and the Dallas Fed manufacturing survey will also provide some further colour on the state of the US manufacturing sector.
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