Export Slump Fuels Australian Dollar Decline

Plunge in Exports Drags Australian Dollar Down

Although January’s trade surplus saw a smaller narrowing than forecast the trade data still left the Australian Dollar on the back foot yesterday. An unexpected -3% plunge in monthly export volumes cast fresh shadow over the outlook of the Australian economy, highlighting the risk of further disruption from the Covid-19 outbreak. With exports looking set to remain weak for some months to come there was little incentive for investors to support the Australian Dollar at this stage.

If Australian retail sales come in flat on the month in January this could put additional pressure on AUD exchange rates today.

Fading Risk of BoE Action Buoys Pound

With markets reassured that the Bank of England (BoE) might not deliver an emergency interest rate cut in the near future the Pound held onto a positive footing. Speculation over the upcoming UK budget also helped to shore up GBP exchange rates overnight, with markets hopeful that fiscal stimulus measures could be on the cards. A smaller yearly decline in new car sales also helped to keep a floor under the Pound.

A softer month for the Halifax house price index may see the Pound fall out of favour this afternoon as worries over the UK economy linger.

Resilient German Construction Limits Euro Downside

A solid improvement in February’s German construction PMI offered some support to the Euro last night. While the construction sector is not the primary driving force of the German economy the PMI’s rise still helped to ease worries over the health of the wider outlook. Even so, with Covid-19 continuing to weigh on economic momentum across the Eurozone EUR exchange rates still struggled to gain any significant traction.

However, a strong monthly rebound in German factory orders could pave the way for stronger single currency demand this evening.

Weak Factory Orders Weigh on US Dollar Demand

As January’s US factory orders data showed a modest -0.1% contraction on the month the mood towards the US Dollar soured. This decline offered fresh evidence that slowing global trade is dragging on the world’s largest economy. With markets wary of the potential for the Federal Reserve to cut interest rates further in the months ahead, aiming to contain the impact of Covid-19, USD exchange rates were left biased to the downside.

If tonight’s non-farm payrolls report disappoints the US Dollar could shed further ground against its rivals.

Proposed OPEC Production Cut Fails to Boost Canadian Dollar

Although the Organisation of Petroleum Exporting Countries (OPEC) proposed a deeper production cut as a result of slowing global growth this failed to shore up the Canadian Dollar. With the cuts not yet agreed with allies such as Russia and unlikely to kick in for some months analysts doubted the likely impact of the move. As a result, the risk-sensitive Canadian Dollar remained under pressure against many of the majors.

With forecasts pointing towards an uptick in February’s unemployment rate CAD exchange rates look set to trend lower heading into the weekend.

New Zealand Dollar Benefits from Rivals’ Weakness

While global anxiety over the spread of Covid-19 and its disruption to trade lingers this was not enough to drag the New Zealand Dollar lower. As both the Australian and US Dollars fell out of favour this encouraged NZD exchange rates to gain ground, benefitting from the relative weakness of rivals.

Even so, in the absence of any fresh New Zealand data releases the potential for further New Zealand Dollar gains appears limited.

Data Releases

March 6th 10:30 AUD Retail Sales (MoM) (JAN) 0.0%
March 6th 17:00 EUR Germany Factory Orders (MoM) (JAN) 1.2%
March 6th 18:30 GBP Halifax House Price Index (MoM) (FEB) 0.2%
March 6th 23:30 CAD Unemployment Rate (FEB) 5.6%
March 6th 23:30 USD Change in Non-Farm Payrolls (FEB) 175,000

Louisa Heath