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Markets

Grim Outlook for the Commodity Currencies

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by John M. Bland

I published a comparative chart of Manufacturing Purchasing Manager Indices late last week that compared the U.S, Eurozone, U.K. and Japan. The chart showed the U.S. slowing, U.K. advancing again, Eurozone starting to improve and Japan flat. I have been asked if I had another set of charts that I watch which focuses on economies heavily influenced by the commodity sector. The one I use features the U.S., Canada, Australia and China. As a major manufacturer, China is included because it is a key consumer of commodities. In the current world, all four are being strongly influenced by falling energy prices.

The economic datacharts I keep use the Monthly Manufacturing Purchasing Manager Reports (PMIs) even though most developed economies are dominated by their Service Sectors. I use the Manufacturing sectors because they tend to be more sensitive to business cycles than the Service Sector. Furthermore, I plot three month moving averages of the data to smooth out some of the statistical noise in the data. Forex markets are always looking to anticipate future changes, so the PMI reports fill the bill because they tend to be current and relatively comparable.

What the Data Say

While the Manufacturing Surveys from advanced economies cited above are unevenly improving, the picture in the commodity influenced economies is pretty grim because of falling energy prices China is being undermined by weak demand for exports from the U.S. and Europe. We often use China data as a proxy for Australia because China relies heavily on raw material exports from Australia for its production.

From top to bottom, U.S. data according to the manufacturing PMI index we use shows the rate if increase slowing significantly. We hasten to add that another manufacturing PMI indicates the U.S. is expanding. Canada has clearly been hit hard by soft prices in the oil patch. A second more volatile Canadian survey confirms this trend. China is flat and Australian production remains weak. These patterns in particular are negative for the outlook for the CAD and AUD.

John M. Bland

co-founder

www.global-view.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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ForEx Economy