Pause in Covid-19 Vaccine Trial Drags Australian Dollar Lower

Australian Dollar (AUD) Fails to Capitalise on Stronger Consumer Confidence

The Australian Dollar (AUD) came under pressure yesterday in spite of a strong improvement in the Westpac consumer confidence index.

Although the index picked up from 93.8 to 105 in October, its highest level since 2018, this was overshadowed by a general deterioration in global market sentiment.

News of a pause in a US Covid-19 vaccine trial and expectations of fresh restrictions around the world fuelled fears that the crisis will roll on for longer. This left the risk-sensitive ‘Aussie’ biased to the downside overnight.

Further losses could be in store this morning as forecasts point towards an uptick in September’s unemployment rate.

Pound (GBP) Bolstered Following Push Back Against Tighter Covid-19 Restrictions

The Pound (GBP) rallied across the board on Wednesday as a number of UK politicians pushed back against the prospect of stricter Covid-19 restrictions.

As Boris Johnson talked down the prospect of a fresh national lockdown, fears of more potential disruption to economic activity eased. This encouraged GBP exchange rates to push higher, while benefitting from a wider deterioration in global risk appetite.

Added to this, the Pound also found support from reports that the UK will continue Brexit trade talks after the UK government’s self-imposed deadline has passed.

Even so, a continued lack of progress towards a UK-EU trade agreement could see volatility in GBP exchange rates in the days ahead.

Euro (EUR) Suffers from Slowdown in Eurozone Industrial Production

The Euro (EUR) faltered as August’s Eurozone industrial production figures showed a loss of economic momentum.

Investors were disappointed to find that production growth had slowed sharply from 5% to 0.7% on the month, with the possibility of a future contraction adding to the bearish mood. As France and other Eurozone nations look set to impose renewed Covid-19 restrictions, the fear of a second dip in economic activity weighed heavily on the single currency.

Comments from European Central Bank (ECB) President Christine Lagarde are unlikely to have any significant impact on the Euro tonight.

US Dollar (USD) Loses Traction in Spite of Producer Price Index Improvement

The US Dollar (USD) struggled to gain traction against a number of the majors last night, even as the latest producer price index figures picked up.

A return to positivity in the year-on-year PPI reading was not enough to offer USD exchange rates any rally overnight. While this suggests that a level of inflationary pressure is returning to the US economy, investors were quick to shrug off the result, leaving the US Dollar vulnerable to selling pressure.

USD exchange rates could return to a stronger footing this evening, though, provided that October’s Philadelphia Fed manufacturing index demonstrates solid growth.

Canadian Dollar (CAD) Supported by Rising Oil Prices

The Canadian Dollar (CAD) found some renewed demand on the back of the latest improvement in global oil prices.

Brent crude prices pushed higher during Wednesday’s European session in the wake of reports that US shale production could fall next month. While global demand looks set to remain muted, the prospect of lower production and a reduction in oversupply offered a boost to the commodity-correlated Canadian Dollar.

CAD exchange rates could see further gains tonight as forecasts point towards a smaller monthly decline in the latest ADP employment change.

New Zealand Dollar (NZD) Slips as Market Risk Aversion Grows

The New Zealand Dollar (NZD) trended lower as market risk appetite generally faded in response to the latest wave of Covid-19 anxiety.

Although the New Zealand economy has largely appeared to weather the impact of the Covid-19 crisis so far, NZD exchange rates still came under pressure as market sentiment soured. As the ‘Kiwi’ remains sensitive to risk aversion there appeared little reason to favour the currency at this stage.

Growing anticipation ahead of Sunday’s general election could see the New Zealand Dollar coming under further pressure in the days ahead.

Data Releases

11:30 AUD Unemployment Rate (Sep) 7.1%
23:30 CAD ADP Employment Change (Sep) -50,000
23:30 USD Philadelphia Fed Manufacturing Index (Oct) 14

Louisa Heath