Euro Stumbles as Italian Industry Slides Deeper into Decline

Hopes of Chinese Economic Recovery Boost Australian Dollar

Even though a significant degree of uncertainty continues to hang over the global growth outlook, thanks to the Wuhan coronavirus outbreak, this failed to keep the Australian dollar under pressure. As the extended Lunar New Year break came to an end markets were encouraged to take a less pessimistic outlook, in spite of the likely damage that has already been caused to the Chinese economy.

The mood towards the Australian dollar may pick up further this morning if the NAB business confidence index rebounds from negative territory as forecast.

Brexit Anxiety Keeps Pound Under Pressure

In the absence of any major UK-EU developments the Pound was able to recover some of its lost ground at the start of the week. Even so, as the two sides look set for a tough period of negotiation ahead of the transition period’s end GBP exchange rates struggled to make any significant gains. With markets bracing for the latest UK growth data the potential for a renewed Pound downtrend remains.

If the quarterly growth rate shows stagnation in the fourth quarter this could see GBP exchange rates shedding fresh ground this evening.

Italian Production Slump Drags Euro Lower

Worries over the health of the Eurozone economy picked up further last night after December’s Italian industrial production showed a sharp contraction. With production across the currency union in decline the risk of a fourth quarter slowdown appeared to increase, to the detriment of the single currency. As Angela Merkel’s preferred successor withdrew from the running for the German chancellorship this put additional pressure on the Euro.

Comments from European Central Bank (ECB) policymakers are unlikely to offer much encouragement to the Euro tonight.

Easing Risk Aversion Limits US Dollar Appeal

As market risk appetite saw some recovery on Monday this limited the potential for US Dollar gains. After a solid run of gains the safe-haven currency stumbled, lacking the momentum to push higher against its rivals at this juncture. In the absence of any fresh US data releases investors saw little reason to favour the US Dollar last night.

With forecasts pointing towards an uptick in the latest NFIB small business optimism index, however, USD exchange rates could return to a stronger footing in the near term.

Building Permits Rebound Lifts Canadian Dollar

A surprise resurgence in Canadian building permits offered a boost to the Canadian Dollar. As permits saw growth of 7.4% on the month in December, eclipsing November’s contraction, markets saw renewed cause for confidence in the economic outlook. With Canadian construction recovering some of its lost momentum CAD exchange rates found a rallying point.

Any weakness in the oil market could see the Canadian Dollar fall out of favour again today, though, as Chinese demand looks set to weaken.

New Zealand Dollar Muted Ahead of Truckometer

While market confidence showed some signs of improvement yesterday this gave little encouragement to NZD exchange rates. Worries over the resilience of the New Zealand economy persisted in the face of the ongoing Wuhan coronavirus outbreak, limiting appetite for the risk-sensitive currency.

A soft reading from the ANZ truckometer may drive further New Zealand Dollar weakness if the data points towards weaker economic activity.

Data Releases

February 11th 07:00 NZD ANZ Truckometer (MoM) (JAN)
February 11th 10:30 AUD NAB Business Confidence (JAN) 0
February 11th 19:30 GBP Gross Domestic Product (QoQ) (4Q) 0.0%
February 11th 21:00 USD NFIB Small Business Optimism (JAN) 103.3

Louisa Heath