US Dollar Maintains Dominance despite 6.6 Million Increase in Jobless Claims

Drop in Business Confidence Weighs on Australian Dollar

The Australian Dollar continued its decline yesterday in the wake of a disappointing NAB business confidence index. As the index dipped from -2 to -11 in the first quarter this highlighted the level of pessimism within the Australian economy, raising the prospect of a weaker gross domestic product performance. With a sharp uptick in US jobless claims stirring fresh market anxiety there was little in the way of encouragement for the risk-sensitive Australian Dollar at this stage.

A stronger month of retail sales for February may help to limit the downside potential of AUD exchange rates this morning, however.

Resilient House Prices Offers Support to Pound

March’s Nationwide housing price index offered a surprise improvement, suggesting that the UK housing market has not yet ground to a halt in the face of Covid-19. This offered the Pound a leg up against its rivals, in spite of other signs still pointing towards a sharp slowdown in economic activity. While a temporary uptick in house prices is unlikely to be enough to insulate the housing market from the consequences of the economic shutdown GBP exchange rates still held onto a positive footing.

This sense of positivity could prove short-lived, however, if the finalised UK services PMI sees any negative revision.

Softening Producer Price Index Fails to Lift Euro

The Eurozone producer price index softened further than forecast in February, pointing towards a weaker level of inflationary pressure within the currency union. Even so, this failed to encourage any demand for the Euro overnight as market anxiety over the Covid-19 pandemic lingered. With the Eurozone still split over the issue of a proposed ‘Corona Bond’ and shared debt a sense of uncertainty over the future of the currency union continued to grow.

Confirmation that the Eurozone services PMI slid deep into contraction territory last month could drive the euro to shed further ground today.

US Dollar Holds Ground in Spite of Record Rise in Jobless Claims

Confidence in the US economy took a fresh blow overnight as the latest initial jobless claims figure delivered an unprecedented increase of 6.6 million. This figure even dwarfed the previous week’s record high, offering evidence of a significant deterioration within the US labour market. Even so, this was not enough to deliver any major decline for the US Dollar as investors instead speculated over the odds of further fiscal or monetary stimulus to come.

Another major deterioration on evidence in tonight’s non-farm payrolls report could see the US Dollar struggle to hold onto a positive footing, though.

Major Oil Price Rally Supports Canadian Dollar

Demand for the Canadian Dollar recovered sharply in the wake of better-than-expected Canadian trade data. A surprise narrowing of February’s trade deficit encouraged a greater sense of optimism in the economic outlook, even in the face of lingering global risk aversion. Reports that a Saudi-Russian production-limiting pact could be on the horizon saw oil prices rally sharply during Thursday’s European session, meanwhile.

As long as markets see signs that a truce is on the cards a stronger oil market should help to shore up the Canadian Dollar against its rivals.

Stable AAA Credit Rating Benefits New Zealand Dollar

After credit ratings agency Moody’s reaffirmed New Zealand’s AAA rating the downside pressure on NZD exchange rates eased. The report painted an optimistic picture of the economic outlook, suggesting that the impact of the pandemic is likely to limited thanks to government action and its strong fiscal position.

Once the impact of the report starts to fade, though, this could see the New Zealand Dollar falling further out of favour with investors.

Data Releases

April 3rd 10:30 AUD Retail Sales (MoM) (FEB) 0.4%
April 3rd 18:00 EUR Eurozone Services PMI (MAR F) 28.4
April 3rd 18:30 GBP Services PMI (MAR F) 34.8
April 3rd 22:30 US Change in Non-Farm Payrolls (MAR) -100,000

Louisa Heath