Talking Points:

Aussie Dollar Sinks on Chinese Deposit Insurance Scheme, Soft PMI Report
British Pound May Decline as Weak News-Flow Undermines BOE Outlook
US Dollar Vulnerable if ISM Pullback Weighs on Fed Rate Hike Speculation

The Australian Dollar underperformed in overnight trade, falling as much as 0.8 percent on average against its leading counterparts. The move may have reflected the announcement of a Chinese bank deposit insurance cap over the weekend. The PBOC said it will introduce a new scheme guaranteeing deposits up to CNY500,000. That scraps the heretofore implicit guarantee that Beijing will backstop its banking sector, signaling that policymakers are prepared to allow some lenders to fail.

This introduces risks that may undermine economic growth in Australia’s largest export market, which could carry negative spillover effects and spur RBA easing. Indeed, the Aussie fell alongside the yield on Australia’s benchmark 10-year bond. A disappointing Chinese Manufacturing PMI print compounded selling pressure, showing factory-sector activity growth slowed to the weakest in eight months.

Looking ahead, UK Manufacturing PMI figures headline the economic calendar in European trading hours. The report is expected to show the pace of sector activity growth slowed in November after posting the first improvement in four months in September. Separately, Mortgage Approvals are seen dropping to 59,000 in October, the lowest since June 2013. Soft news-flow may delay the expected onset of BOE interest rate hikes, weighing on the British Pound.

Later in the day, the US ISM Manufacturing print enters the spotlight. Consensus forecasts call for the gauge to drop back to 58.0 in November having tagged a three-year high at 59.0 in the prior month. That may extend the timeline for the onset of Fed tightening in the minds of investors, pressuring the US Dollar after the benchmark unit advanced to a five-year high to start the trading week.

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