Australian Dollar
After slumping following the release of disappointing Chinese manufacturing data, the Australian Dollar largely extended losses in the wake of the Reserve Bank of Australia’s (RBA) latest interest rate announcement. While the central bank was fairly upbeat regarding Australia’s economic prospects, it did intimate that further rate cuts could be on the cards this year.
Before Christmas policymakers were rather blasé about future fiscal policy moves but it appears that the Chinese market crash triggered at the beginning of January has rattled some cages.
Although Australia’s trade figures revealed a widening in the nation’s deficit, the ‘Aussie’ managed to claw back some ground against the US Dollar on Wednesday as China’s Services PMI showed sturdy output growth. A subsequent lessening in risk eversion pushed AUD/USD higher and the pairing was able to consolidate gains as the US ISM Non-Manufacturing PMI fell flat.
Sterling
Hopes that UK PM David Cameron is making progress in his EU referendum negotiations gave the Pound a lift during Wednesday’s European session and the British currency was able to hold its own against the firming ‘Aussie’ following the release of domestic services data.
The news that the UK Markit Services Index edged up to 55.6 from 55.5 in January, when viewed in conjunction with Monday’s impressive manufacturing result, left investors feeling fairly optimistic about the state of the local economy at the start of 2016.
AUD/GBP held in the region of 0.4850 but could experience considerable volatility tonight as the Bank of England (BoE) delivers its latest interest rate decision and publishes its quarterly inflation report. Dovish sentiment from policymakers has the potential to send the Pound reeling.
Euro
Almost uniformly disappointing Services PMIs for the Eurozone’s largest economies initially put the Euro under pressure on Wednesday but the common currency was able to stage a rebound following the publication of the disappointing US Non-Manufacturing report.
As EUR/USD is the world’s most traded currency pair, the sharp slide in USD demand following the sub-par services figure helped the Euro gain on rivals like the Australian Dollar.
Upcoming ecostats from the Eurozone with the potential to initiate further AUD/EUR movement include the European Central Bank’s (ECB) monthly bulletin and Retail PMI’s for Germany, France and the Eurozone as a whole. Positive data could cement the ‘Aussie’s current downtrend against its European peer.
US Dollar
China’s Services PMI trumped forecasts on Wednesday and bolstered risk appetite in the process. The safe-haven US Dollar declined accordingly and AUD/USD edged higher.
The Australian Dollar held gains against the ‘Greenback’ despite a better-than-expected US ADP Employment Change print as the influential US ISM Non-Manufacturing PMI dipped from 55.8 to 53.5 in January. While the figure remained above the 50 mark separating growth from contraction, the decline in output did encourage some investors to question whether the Federal Reserve would be right to introduce additional interest rate hikes in the months ahead.
If the next batch of US reports, including the nation’s Durable Goods Orders and Non-Farm Payrolls figures, also fall wide of the mark the Australian Dollar could advance beyond 0.71.
Canadian Dollar
Oil prices might still be providing cause for concern, but the Canadian Dollar was able to firm against the Australian Dollar on Wednesday. Whether or not the AUD/CAD pairing posts additional losses depends in part on the value of Canada’s key commodity, black gold, and the nation’s latest batch of employment numbers.
Strong jobs growth in Canada could help ease concerns that the Bank of Canada (BOC) intends to adjust interest rates in order to bolster the domestic economy and give the ‘Loonie’ a shot in the arm in the process.
New Zealand Dollar
The latest dairy auction showed a decline in the price of New Zealand’s main commodity but the news failed to keep the ‘Kiwi’ down for long. NZD surged by over 1% against its Australian cousin thanks to shockingly good employment data for New Zealand.
New Zealand’s unemployment rate surprised everyone by dropping from 6.0% to a multi-year low of 5.3% in the fourth quarter of 2015. The strength of the result, coupled with the good news from China, saw the New Zealand Dollar record gains across the board. With little in the way of notable data due for release from New Zealand before the weekend, risk appetite and commodity price shifts are likely to be the biggest cause of NZD movement.
Data Released
Feb 4th 11:30 AUD NAB Business Confidence
Feb 4th 20:00 EUR ECB Economic Bulletin
Feb 4th 23:00 UK BoE Interest Rate Decision 0.5%
Feb 4th 23:00 UK BoE Inflation Report
Feb 5th 02:00 US Durable Goods Orders