Risks Rise Towards the USD As Slower Growth Weighs
Risks are rising towards the US Dollar after manufacturing data for September showed a contraction in employment and new orders against a background of high inflation and rising interest rates.
The Institute for Supply Management (ISM) September Manufacturing PMI fell from 52.8 in August to 50.9 in September. The indicator is still in growth territory but at the slowest pace since the COVID-19 pandemic began in early 2020.
Given that the US manufacturing sector is the world’s second largest after China and that tighter monetary conditions are pressuring access to capital, it’s vital to watch developments in this area. If the manufacturing sector slips into overall contraction in the fourth quarter, headwinds will strengthen against overall GDP growth for the full year.
Higher prices of commodities used in manufacturing like aluminum, nickel and crude oil have affected industrial growth in other markets as well but in different ways. Raw material exporters like Australia have gained on strong demand and more limited supplies due to geopolitical factors. We’ll know more about the strength of the Australian export market tomorrow, October 6, when the month-on-month Trade Balance will be released for August. The benchmark is expected to have grown from 8.733 billion in July to 10.5 billion in August.
While the Reserve Bank of Australia has increased interest rates, it is at a slower pace than the US Federal Reserve, meaning that the AUD is weaker against the USD. This reduces the exchange rate hurdle to buying raw materials exported by Australia and may help to support trading volume.
Other than the exporter side, on the consumer side it seems that everyone is complaining about high retail prices. The Eurozone will release the Retail Sales report for August on October 6, so there will be a moment of consumer truth for the bloc. On an annual basis, retail sales are expected to have declined from minus 0.9 percent in August 2021 to minus 1.7 percent in August 2022. The Eurozone’s largest economy, Germany, is set to release its Retail Sales report on Friday, October 7. The indicator is expected to have weakened to minus 5.1 percent in August 2022 from minus 2.6 percent in August 2021.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.