Pound Stumbles as NIESR Points to -4.8% March GDP Contraction

Signs of RBA Confidence Support Australian Dollar

As the Reserve Bank of Australia (RBA) signalled confidence that the financial system will be able to weather the storm of the Covid-19 pandemic this offered a boost to the Australian Dollar. With markets confident that the RBA could leave monetary policy on hold in the near term AUD exchange rates found a rallying point. A general improvement in market sentiment also lent support to the antipodean currency.

However, the latest Chinese inflation data could still put a dampener on the Australian Dollar ahead of the weekend as investors look for signs of recovery from the world’s second largest economy.

Pound Upside Limited Thanks to UK GDP Contraction

The mood towards the Pound soured in the wake of underwhelming UK gross domestic product data. Both February’s monthly growth rate and the NIESR monthly GDP tracker for March showed a contraction, highlighting the deterioration of the economy. As the NIESR tracker suggests that growth plunged -4.8% in the last month this cast a fresh shadow over the UK outlook, leaving GBP exchange rates biased to the downside.

While worries over Boris Johnson’s condition have eased the threat posed by Covid-19 looks set to keep the Pound on a weaker footing for some time to come.

Jump in German Exports Unable to Lift Euro Demand

A surprise 1.3% jump in monthly export volumes helped to swell the German trade surplus in February, suggesting a greater level of resilience within the Eurozone’s powerhouse economy. However, the Euro struggled to capitalise on the positive data thanks to the ongoing disagreement between Eurozone leaders over the prospect of shared debt. In the absence of greater political unity there was little appetite for the single currency.

Until markets see signs of Eurozone nations coming to an agreement on the subject of the so-called ‘coronabonds’ support for the Euro could prove limited.

Fed’s Willingness to Act Further Weighs Heavily on US Dollar

Initial jobless claims exceeded forecast once again, jumping 6.6 million on the week. This put the US Dollar under renewed pressure, with the data pointing towards the unemployment rate already exceeding 10%. Fresh commentary from Federal Reserve Chair Jerome Powell also weighed on USD exchange rates as he indicated the central bank’s willingness to act further to support the economy.

Although the consumer price index is not the Fed’s preferred measure of inflation a softer reading from tonight’s data could still limit the potential for a US Dollar recovery.

Hopes of OPEC+ Breakthrough Bolster Canadian Dollar

Reports that OPEC+ were on the verge of agreeing a significant production cut helped to bolster oil prices during Thursday’s European session. Brent crude prices climbed more than 8% in the wake of the news, offering a boost to the commodity-correlated Canadian Dollar. While Canada’s unemployment rate picked up further than forecast in March, clocking in at 7.8%, this failed to drag on CAD exchange rates.

Even so, oil prices could remain in flux until markets see confirmation that tensions between Russia and Saudi Arabia have eased.

New Zealand Dollar Shakes off Retail Spending Plunge

New Zealand consumers showed greater signs of reticence in March as retail card spending plunged -3.9% on the month. However, while this decline increases the odds of an imminent growth slowdown NZD exchange rates still found renewed ground. With the US Dollar on the back foot the New Zealand Dollar benefitted from an improvement in market risk appetite.

As long as the global economy looks set for a major slowdown, though, NZD exchange rates may struggle to hold onto any bullishness for long.

Data Releases

April 10th 22:30 USD Consumer Price Index (YoY) (MAR) 1.6%

Louisa Heath