Preliminary PMIs miss

The dollar is weaker this morning as investors balance their Fed outlook with lower than expected data from the private sector.

US activity slowed in the month of June according to a flash estimate of Markit’s Purchasing Managers’ Index. The survey canvasses a slew of private sector businesses in manufacturing and services. The flash estimate showed that output growth slowed in June, and while activity slowed from the month before it remains in solid expansion territory.

New orders also rose at the strongest pace in five months. This points to growing demand which should drive higher output in the coming months.

CAD falls with inflation

Canadian dollar moved lower this morning after underwhelming inflation data. Canada’s Consumer Price Index (CPI) unexpectedly slipped in May. At an annual increase of 1.3%, it was a step down from the previous two months which held at 1.6%, and below expectations of a 1.5% rise. It was the lowest reading since November. Much of the headline weakness was driven by gasoline prices, which rose at just half the pace seen the month before.

The top question this pushes is whether this will rain on the Bank of Canada’s parade. BoC has been markedly hawkish of late, and this miss could dampen calls for near-term rate hikes.

BoC Governor Stephen Poloz has said the economy’s adjustment to lower oil prices “is largely complete,” and with projections of stronger growth the bank is eyeing normalizing policy. We don’t think this is a huge deterrent for raising rates. The data indicated pressure from energy prices, and the BoC has already recognized this factor. The overall outlook remains positive, and if fundamentals remain strong we may be able to dismiss the miss.

Euro shrugs off disappointing PMIs

The euro stronger this morning despite a miss in preliminary PMI figures for June. The composite reading fell from a six-year high reached the month before. Manufacturing continued to expand, with output rising at the fastest pace since April 2011, but service sector growth lagged.

Why is the euro higher if data missed? The big picture continues to push a positive outlook. The Eurozone still had its best quarter in six years despite the slowdown in June. New order growth fell in services, but factories saw the highest influx of new orders since February 2011. The report also noted that “strong jobs growth was also a reflection of ongoing elevated levels of optimism about future growth.”