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European Session – Aussie and kiwi outperform; Pound steady despite slump in construction PMI

The British pound saw some erratic moves following unexpectedly weak construction PMI, but remained within a tight range as market liquidity was thin due to the US Independence Day holiday. Sterling hit an intra-day low of 1.3239 dollars after the PMI data, which showed construction activity in the UK fell sharply from 51.2 in May to 46.0 in June, missing estimates of 50.5.

A reading below 50 is defined as a contraction in activity and is a sign that the uncertainty ahead of the Brexit referendum had already started impacting business decisions. The data rattled the markets as it was seen as a possible indication of what’s to come post-Brexit vote. However, market sentiment quickly improved and the pound settled around 1.3285 dollars in late European trading.

The euro also saw a dip earlier in the day as the latest sentix index, which measures business sentiment across the Eurozone, also fell by more-than-expected. The sentix index declined from 9.9 in June to 1.7 in July and was below expectations of 5.0. The survey was run between June 30 and July 2 and is therefore the first to poll investors after the UK voted to leave the EU on June 23.

The single currency briefly fell below 1.11 dollars after the data but later recovered to climb to 1.1136 dollars. Also out of the Eurozone today were producer prices for May. Producer prices rose by double the expected figure – by 0.6% month-on-month in May, adding to recent data pointing to receding deflationary pressures in the euro area.

The dollar was stuck in a very tight range against the yen for much of the day in thin trading and last stood at 102.60 yen. The Australian and New Zealand dollars on the other hand outperformed the other majors on Monday.

The Australian dollar rebounded strongly from its Asian open of 0.7444 versus the greenback to rally to a high of 0.7536 in late European session. Fears of the economic implications of a political deadlock in Australia following federal elections on Saturday where the vote count so far is pointing to the possibility of a minority government, have ebbed during the course of the day.

The New Zealand dollar also performed strongly on Monday and was up by 0.7% at 0.7219. Investors were undeterred by the prospect of further rate cuts by both the RBA and RBNZ (with the RBA due to meet tomorrow) as the higher yielding government bonds of Australia and New Zealand in relation to other advanced countries have increased the attractiveness of the antipodean currencies following the Brexit vote.

Another commodity currency to advance against the greenback today was the Canadian dollar. The loonie ignored a weak Bank of Canada business sentiment survey and lower oil prices to firm to a one-week high of 1.2831 per US dollar.

Not as fortunate was the Chinese yuan, which continued to touch fresh 5½-year lows on Monday as the People’s Bank of China allowed the currency to weaken. The yuan was last trading at 6.6650 per dollar.

Meanwhile, gold and silver prices held onto to their earlier gains but remained below their intra-day peaks. Gold prices were trading 0.6% firmer at $1349.57 an ounce, while silver was up 4.4% at $20.45 an ounce in late European session.

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