The main standout overnight is the recovery in the Aussie dollar, which has recovered back above the 0.89 level after the latest data from China brings at least some relief at the margins. The rise in the HSBC manufacturing series was marginal (from 50.2 to 50.5), but was sufficient to take away some of the concerns that were prevalent at the start of the week. We’ve also seen iron ore prices stabilise after what has been a sharp decline so far this month (more than 6%). The Aussie has been the weakest currency on the majors so far this month, so is more vulnerable to corrective activity at this time as soon as the conditions align to allow for this, as they have done overnight. But in the bigger picture, the currency remains vulnerable as the US moves every closer to the point that rates are increased and China continues its growth shift towards more modest headline growth, with a reduced reliance on investment spending.
Elsewhere, sterling has continued its tentative recovery in the wake of the Scottish referendum results, which saw the pound weaken after the initial relief rally last Thursday. We’ve also seen the single currency move away from the 1.28 level (1.2816 low see yesterday), as the market has yet to be convinced that the ECB can deliver the balance sheet expansion that the ECB President has promised. This makes the advent of full-blown QE more likely as a meant towards achieving this, but it’s not clear that the ECB has a consensus on the Governing Council to start QE at this point in time. The charts suggest that consolidative activity is likely to continue so long as we hold above yesterday’s low, but the single currency could be vulnerable on a break lower. The provisional PMIs for September (released this morning) have a generally firmer picture, although the German manufacturing series fell to 50.3 (from 51.4), with services outperforming.