Uptick in NAB Business Confidence Boosts Australian Dollar

Australian Dollar (AUD) Trends Higher on Business Confidence Improvement

The Australian Dollar (AUD) benefitted from a surprise improvement in the NAB business confidence index yesterday.

As forecasts had pointed towards the index falling deeper into negative territory in September, it came as a pleasant surprise that it had instead picked up from -8 to -4, its highest level since June. Although this still leaves sentiment in negative territory, it suggests that confidence is starting to recover from its previous lows, offering AUD exchange rates a boost.

However, while no change in interest rates is anticipated, the Reserve Bank of Australia’s (RBA) policy announcement could still weigh on the Australian Dollar today as some investors expect a rate cut in November.

Pound (GBP) Lacks Traction amid UK Labour Market Woes

The Pound (GBP) struggled to find much traction against its rivals, even as the finalised UK services PMI for September saw a positive revision.

While the UK service sector showed fresh signs of growth, with the PMI picking up to a solid 56.1, this was undermined by the latest evidence of labour market weakness. A seventh consecutive month of job losses for the sector cast a shadow over the economic outlook, especially as major cinema chain Cineworld announced its intention to close all of its UK sites.

Any signs of weakness within the corresponding UK construction PMI could see the Pound shedding fresh ground against its rivals this evening.

Euro (EUR) Strengthens on Eurozone Retail Sales Bounce

The Euro (EUR) made some solid gains at the start of the week thanks to a better-than-expected performance in the latest Eurozone retail sales data.

After the sharp decline in sales seen in July, investors were encouraged by evidence that consumer demand bounced back strongly on the month, pushing sales up 4.4%. This helped to limit the impact of September’s finalised services PMIs, even as they confirmed that the Eurozone service sector experienced a contraction at the end of the third quarter.

Meanwhile, another decent month of growth in German factory orders could shore up the single currency further.

US Dollar (USD) Slips on Improved Risk Appetite

The US Dollar (USD) came under renewed pressure on Monday as the general sense of market safe-haven demand faded.

The US Dollar fell largely out of favour as investors piled back into higher-yielding assets once again, with concerns over Donald Trump’s Covid-19 diagnosis fading. This offset the ISM non-manufacturing index as it picked up solidly on the month, failing to offer USD exchange rates any particular boost.

As the US trade balance looks set to show a widened deficit in August, support for the US Dollar may continue to weaken over the course of the day.

Canadian Dollar (CAD) Lifted by Latest Oil Price Surge

The Canadian Dollar (CAD) made some limited gains as oil prices staged a strong upward trend in response to reduced risk aversion.

News that Iraq plans to boost its oil exports in spite of existing OPEC+ pledges, adding to the global oversupply glut, this was not enough to prevent prices pushing higher at the start of the week. However, the Canadian Dollar struggled to gain much ground against some of its stronger rivals as anticipation for the week’s Canadian data releases grew.

However, if August’s trade deficit narrows as forecast, CAD exchange rates could stage a stronger rally tonight.

New Zealand Dollar (NZD) Fails to Benefit from Easing Covid-19 Restrictions

The New Zealand Dollar (NZD) struggled to capitalise on the lifting of domestic Covid-19 restrictions yesterday.

Although this offers a positive signal for the outlook of the New Zealand economy, NZD exchange rates remained on the back foot in the wake of the news. As the New Zealand Dollar has largely defied the recent sell-off in risk-sensitive assets, this limited the potential for further gains at this stage, keeping NZD exchange rates under a degree of pressure.

The New Zealand Dollar could shed further ground, unless the third quarter NZIER business confidence index demonstrates signs of improvement

Data Releases

07:00 NZD NZIER Business Confidence Index (Q3) – 60
13:30 AUD Reserve Bank of Australia Rate Decision 0.25%
16:00 EUR Germany Factory Orders (Aug) 2.5%
18:30 GBP Construction PMI (Sep) 54
22:30 CAD Balance of Trade (Aug) C$-2 billion
22:30 USD Balance of Trade (Aug) $-66.1 billion

Louisa Heath