Construction PMI Uptick Offers Support to Australian Dollar
The mood towards the Australian Dollar improved yesterday after January’s construction PMI showed a modest improvement on the month, picking up from 42.6 to 43.1. Although this still left the sector within contraction territory the uptick encouraged hopes that the construction sector could recover further. With the Federal Reserve continuing to adopt a cautious outlook on monetary policy the Australian Dollar also benefitted from an increase in market risk appetite.
AUD exchange rates could come under fresh pressure this morning, however, if the Reserve Bank of Australia (RBA) Statement of Monetary Policy proves cautious in tone.
Pound Gains Ground in spite of BoE Caution
After an initial dip the Pound returned to a stronger footing in the wake of the Bank of England’s (BoE) first policy meeting of 2019. While the meeting minutes indicated that the next move in interest rates could be either up or down this failed to weigh down GBP exchange rates for long. Even as the BoE downgraded its growth forecasts investors took encouragement from Governor Mark Carney’s comments suggesting that a no-deal Brexit is still not the most likely scenario.
However, as markets continue to speculate over Theresa May’s ability to secure a deal on the Irish border that will satisfy MPs the Pound may struggle to hold onto its gains today.
Downgraded European Commission Forecasts Add to Euro Bearishness
In another blow to the Euro December’s German industrial product data fell short of forecast, showing a sharper contraction on the year. As confidence in the outlook of the Eurozone’s powerhouse economy continued to deteriorate EUR exchange rates were left on a downtrend. Selling pressure on the Euro increased further in the wake of the latest European Commission forecasts as expectations for the German and Italian economies were revised lower.
If the German trade surplus narrows as forecast this afternoon the Euro looks likely to shed further ground against its rivals.
Underwhelming Jobless Claims Data Dents US Dollar
The latest US jobless claims figures failed to support the US Dollar overnight as both initial and continuing claims proved higher than anticipated. Even though claims still saw a decline on the week this was not enough to encourage USD exchange rates. As the Federal Reserve looks set to maintain a neutral policy bias in the near term, with policymakers signalling less appetite for raising interest rates, demand for the US Dollar has cooled.
Further cautious commentary from Fed policymakers could see USD exchange rates trending lower heading into the weekend.
Canadian Dollar Lacks Support as Oil Prices Weaken
CAD exchange rates remained on the back foot yesterday as investors continued to lack incentive to favour the Canadian Dollar over its rivals. As oil prices remained under pressure in the face of rising US production the commodity-correlated CAD fell further out of favour. With investors adopting positions ahead of tonight’s unemployment data the Canadian Dollar struggled to find anything in the way of support.
As forecasts point towards an uptick in January’s unemployment rate CAD exchange rates look set for further downside pressure.
Rising Unemployment Weighs Heavily on New Zealand Dollar
An unexpectedly sharp increase in the fourth quarter unemployment rate saw the New Zealand Dollar slump across the board. Although investors had been braced for an uptick in unemployment the increase from 3.9% to 4.3% still caught markets off guard. As the corresponding participation rate saw a marked decline this suggests that a lower number of New Zealanders are active within the labour market, exacerbating worries over the economic outlook.
The appeal of the New Zealand Dollar is unlikely to fully recover today as markets continue to absorb the negative jobs data.
February 8th 11:30 AUD Reserve Bank of Australia Statement on Monetary Policy
February 8th 18:00 EUR German Trade Balance (DEC) 17.3 billion
February 9th 00:30 CAD Unemployment Rate (JAN) 5.7%