Euro May Be Asymetrically Sensitive if PMI Data Tops Expectations

The Euro may be asymmetrically more sensitive than otherwise if September’s preliminary PMI data set tops economists’ expectations.

Talking Points:

• Euro May Prove Most Responsive to Better-Than-Expected Sep. PMI Results

• Aussie Dollar Outperformed Following Upbeat Chinese PMI Print Overnight

• NZ Dollar Sold on Fading RBNZ Rate Hike Bets, Dairy Exports Expectations

September’s preliminary set of Eurozone PMI figures headlines the economic calendar in European trading hours. The regional composite index is expected to show that the pace of manufacturing- and service-sector growth remained unchanged this time around after sliding to an eight-month low in August. A print in line or worse than expected seems unlikely to generate significant Euro volatility.

The ECB has already introduced an aggressive array of stimulus easing measures, meaning further evidence speaking to weakness in the region is unlikely to materially upset the established status quo and spur capital flows. On the other hand, anoteworthy improvement may fuel upside volatility amid an unwinding of formidably built-up speculative short positions.

The Australian Dollar outperformed in overnight trade, rising as much as 0.2 percent on average against its leading counterparts. The move followed better-than-expected Chinese Manufacturing PMI data from HSBC that showed the pace of growth in factory-sector activity unexpectedly accelerated in September. China is Australia’s largest trading partner and traders often interpret signs of improvement there as positive for the latter country’s business cycle, which in turn underpins supportive RBA policy bets.

The New Zealand Dollar proved weakest on the session, falling as much as 0.2 percent against the majors. The move tracked a drop in New Zealand’s benchmark 10-year bond yield, pointing to eroding RBNZ rate hike expectations as the catalyst behind the selloff. Downward pressure may have been compounded by a report from Rabobank that showed 47 percent of polled dairy farmers expected business performance to deteriorate in the coming 12 months. Dairy is New Zealand’s largest export sector and a drop-off there bodes ill for the economy as a whole, which may in turn limit the scope of future monetary tightening.