Daily FX Update, 2 April 2015

OVERNIGHT MARKET UPDATE:

·         US ADP employment was softer than the Bloomberg consensus, increasing by 189k in March against market expectations for a 225k rise. These data may result in consensus estimates for Friday’s payrolls release being lowered.     

·         In US, the ISM manufacturing survey moderated further in March to 51.5, the lowest level since May 2013. Respondents mentioned a range of factors dampening activity, many of which should be transitory. That said, US manufacturers are most exposed to the stronger USD.

·         The final euro area manufacturing PMI for March was revised marginally higher to 52.2 from 51.9. The ECB stimulus measures and lower oil prices continue to support the modest cyclical upswing. 

·         The UK manufacturing PMI rose to 54.4 in March, up from 54.1 in February. This is the highest level since July 2014, with the macroeconomic backdrop in the UK remaining positive. 

·         In the currency market, the USD was contained following the weaker-than-expected US economic data, raising question marks about payrolls expectations for Friday. NZD shook off Global Dairy Trade weakness and the AUD was unable to bounce as markets focus on Tuesday’s RBA Board meeting and as iron ore fell below USD50/tonne.

·         US Treasuries rallied (10-year yields down 7 bps) due to the weaker-than-expected US economic data.

·         US equities weakened on the softer dataflow. Dow Jones decreased 0.44% from the previous trading session.

·         Crude oil prices rebounded, finding support in a lower-than-expected rise in US crude oil inventories. Slower growth in inventories is signaling that production is finally catching up to the recent decline in the US rig count.             

Precious metals were also higher, driven by the lower USD, following the release of weaker-than-expected US economic data.