Drop in Construction Activity Drags on Australian Dollar
A sharper-than-expected decline in the fourth quarter construction work done figure left the Australian Dollar on the back foot yesterday. As construction plunged -3% this offered fresh evidence of weakness within the Australian economy, dragging AUD exchange rates into another downtrend. With markets still in a distinctly risk-averse mood there was nothing to prevent the antipodean currency from weakening.
If the fourth quarter private capital expenditure reading shows a solid rebound, however, the Australian Dollar could find some support against its rivals today.
Pound Slips Lower as Shop Price Index Disappoints
February’s British Retail Consortium shop price index put a dampener on the Pound as it fell short of forecasts. The -0.6% decline in prices on the year added to existing doubts over the likelihood of the recent inflation uptick persisting. With the possibility of a Bank of England (BoE) interest rate cut still on the table there was little incentive for investors to favour the Pound overnight.
Increasing anxiety over the upcoming UK-EU trade discussions could also help to keep GBP exchange rates on a weaker footing in the days ahead.
Potential Change to ECB Inflation Target Weighs on Euro
With the European Central Bank (ECB) reportedly in heated debate over a potential change to its inflation target support for the Euro proved limited. Markets still expect to see the central bank enact further monetary policy loosening before the end of the year, keeping EUR exchange rates under a degree of pressure. Anxiety over the increasing number of Covid-19 infections within Europe also limited the appeal of the single currency.
Any deterioration in the latest Eurozone business confidence index may push the Euro into a slump across the board.
Strong Increase in Home Sales Bolsters US Dollar Exchange Rates
The latest US new home sales data showed a solid improvement on the month, encouraging greater confidence in the outlook of the US economy last night. As sales rose by a solid 7.9% this fuelled hopes that the housing market returned to a better state of health in January. Lingering market anxiety over the spread of Covid-19 also helped to boost USD exchange rates as safe-haven demand grew.
As durable goods orders are expected to see a sharp drop on the month in January this could leave the US Dollar exposed to selling pressure tonight.
Oil Price Bounce Lifts Canadian Dollar Demand
After falling to a one-year low in response to Covid-19 anxiety oil prices rebounded during Wednesday’s European session. As the Energy Information Administration reported a far smaller uptick in oil inventories on the week this gave prices a solid boost. The commodity-correlated Canadian Dollar benefitted from this positive price action, even as worries over the global economic outlook lingered.
A slowdown in December’s average weekly earnings data may see the Canadian Dollar trending lower once again, however.
New Zealand Dollar Under Pressure Ahead of Trade Data
With markets still in a largely risk-averse mood yesterday support for the New Zealand Dollar remained generally limited. As the number of global Covid-19 infections continued to rise the potential for further economic disruption pushed NZD exchange rates lower.
The mood towards the New Zealand Dollar could sour further this morning if January’s trade balance falls into a deficit as forecast.
Data Releases
February 27th 07:45 NZD Trade Balance (JAN) -533 million
February 27th 10:30 AUD Private Capital Expenditure (4Q) 0.5%
February 27th 20:00 EUR Eurozone Business Confidence Index (FEB) -0.28
February 27th 23:30 CAD Average Weekly Earnings (YoY) (DEC) 2.5%
February 27th 23:30 USD Durable Goods Orders (JAN P) -1.5%