The Aussie Dollar has spent most of this week moving lower against the USD, although from Monday’s opening levels in Sydney it is up against both the EUR and GBP. The combination of lower stock markets, much lower gold prices and a pick-up in volatility is rarely good for the AUD and though yesterday it bounced a couple of times off technical support in the 0.7780-90 area, it has tumbled further overnight. This morning’s low of 0.7715 in Europe is a fresh low for 2018 and the weakest since December 27th.
The fall in the Australian Dollar comes despite a very upbeat survey on manufacturing. The Commonwealth Bank PMI index – a composite indicator designed to measure the performance of the manufacturing economy – edged slightly higher to 55.6 in February, from 55.4 in January, signaling a strong rate of improvement in the health of the manufacturing sector. The headline PMI has recorded above the 50.0 no-change mark in each month since the survey began in May 2016. According to CBA, “Australia’s manufacturing sector continued to improve strongly in February, supported by robust output growth and increased new business inflows. Buoyed by these trends, both business confidence and the rate of job creation reached fresh survey highs. As a result of higher staff levels, backlogs of work increased to a weaker extent. Meanwhile, strong demand led to intense pressures on supply chains, with delivery times rising”.
Also released overnight were the Q4 Capital Expenditure numbers. According to the Australian Bureau of Statistics, CAPEX fell by 0.2% to $29.57 billion in the final quarter of last year, missing forecasts for an increase of 1%. CAPEX in the September quarter of 2017 was revised up from +1.0% to show a gain of 1.9%. Despite the lower than expected headline number, total CAPEX grew by 4% over the year, the strongest increase in five years. Spending on buildings fell by 2.1% to $16.2 billion, partially offset by a 2.2% increase in investment on plant, machinery and equipment which rose to $13.4 billion. It is this last number which feeds directly into Australia’s Q4 GDP report released next week, and will therefore contribute to real GDP growth. The Australian Dollar opens in North America this morning at USD0.7730, with AUD/NZD at 1.0710 and AUD/CAD0.9935.