Australian Dollar Falls Out of Favour as Risk Appetite Fades

Australian Dollar Falls as Market Optimism Fades

As Boxing Day’s bout of market optimism faded the Australian Dollar came under renewed pressure. Investors were more inclined to favour safe-haven assets over the commodity-correlated AUD as worries over the global economic outlook re-emerged. With evidence still pointing towards a loss of momentum in the Chinese economy the appeal of the Australian Dollar diminished, lacking the support of any fresh domestic data.

Unless risk appetite sees a resurgence today the upside potential of AUD exchange rates is likely to prove limited.

Brexit Worries Limit Pound Demand

Speculation over Brexit kept the Pound on the back foot yesterday as investors continue to fret over the likely defeat of the proposed Withdrawal Agreement. As the UK’s future relationship with the EU still appears to be up in the air there was little reason to support Sterling. Worries over the outlook of the UK economy also remain, with the prospect of weakening growth putting further pressure on GBP exchange rates.

With mortgage approvals forecast to show a decline on the month the appeal of the Pound could diminish further this evening.

ECB Optimism on Inflation Boosts Euro

While the latest European Central Bank (ECB) Economic Bulletin indicated that global growth is likely to slow further in the coming year this failed to weigh down the Euro. Focus instead fell on the ECB’s more positive outlook on inflationary pressure, suggesting that inflation will continue to build in 2019. This gave the Euro a boost against its rivals, even though the prospect of any ECB interest rate hike remains distant.

Tonight’s German consumer price index data may prompt a slump for the single currency, however, with forecasts pointing towards a softening of the headline inflation rate.

Softening Consumer Confidence Limits US Dollar Upside

The mood towards the US Dollar continued to fluctuate overnight as risk aversion was counterbalanced by disappointing US data. December’s consumer confidence index proved discouraging as it slipped from 136.4 to 128.1, falling further than forecast. This weakening in domestic sentiment could weigh on growth going forward, giving the Federal Reserve more reason to leave interest rates on hold. Even so, market jitters still gave USD exchange rates support.

Another disappointing showing from the November advance goods trade balance tonight may knock the US Dollar off its stronger footing, however.

Oil Price Decline Keeps Canadian Dollar Under Pressure

As oil prices continued to weaken even in the face of impending OPEC-led production cuts the appeal of the Canadian Dollar was limited. With Brent crude looking set to remain trapped in the region of US$50-55 per barrel for some time to come the upside potential of CAD exchange rates proved limited. The slowdown in the global economy also weighed heavily on demand for the Canadian Dollar yesterday.

With the oil market looking unlikely to recover in the near future the Canadian Dollar may struggle to find any traction.

New Zealand Dollar Struggles Amid Risk Aversion

The general lack of market risk appetite also left the New Zealand Dollar on a weaker footing. With the New Zealand economy already struggling to recover its lost growth momentum the prospect of a further global slowdown dampened the mood of investors. Even underwhelming US data was not enough to shore up NZD exchange rates at this stage.

Demand for the New Zealand Dollar is likely to remain muted today in the absence of any domestic data.

Data Released

December 28th 20:30 GBP BBA Loans for House Purchase (NOV) 38,850
December 29th 00:00 EUR German Consumer Price Index (YoY) (DEC P) 1.9%
December 29th 00:30 USD Advance Goods Trade Balance (NOV P) -76 billion

Louisa Heath