Australian Dollar (AUD) Boosted by Solid Chinese Growth Signals
The Australian Dollar (AUD) benefitted from a strong set of Chinese growth and production data at the start of the week.
Although the third quarter Chinese gross domestic product was not quite as strong as forecast, this still encouraged a general improvement in market risk appetite. The appeal of the risk-sensitive Australian Dollar improved as the world’s second-largest economy appears back on track in the wake of the initial Covid-19 crisis.
However, the upside potential of AUD exchange rates was limited by the Reserve Bank of Australia (RBA) looking set to cut interest rates again soon.
As long as comments from RBA policymakers continue to point towards a rate cut, this could keep the Australian Dollar vulnerable to selling pressure.
Pound (GBP) Recovers on Hopes of UK-EU Trade Deal
The Pound (GBP) pushed higher at the start of the week thanks to hopes that the UK and EU could still agree a deal.
While talks between the two sides remained deadlocked, investors were encouraged by signals that neither is at the point of walking away yet. This allowed the Pound to stage a fresh rally during Monday’s session despite some risk of a no-deal scenario persisting.
With Bank of England (BoE) policymakers speaking ahead of the latest UK consumer price index report, though, the potential for renewed GBP exchange rate losses remains.
Euro (EUR) Downside Limited as Eurozone Construction Output Picks up
The Euro (EUR) found some traction against its rivals as August’s Eurozone construction output reading bettered forecast.
Although the construction sector still saw a contraction on the year, reporting a -0.9% decline in output, this showing was still better than feared. A smaller-than-expected widening of the Spanish trade deficit also offered a boost to the single currency, temporarily easing worries over the outlook of the currency union’s economy.
However, another sharp contraction in September’s German producer price index may leave the Euro on the back foot tonight.
US Dollar (USD) Fails to Capitalise on Hopes of Fiscal Stimulus Deal
The US Dollar (USD) saw limited demand overnight thanks to the wider improvement in market sentiment, even as hopes of potential fiscal stimulus picked up.
As House Democrat leader Nancy Pelosi indicated optimism over the possibility of agreeing a stimulus deal before the upcoming presidential election, anxiety over the economic outlook eased. Even so, the US Dollar struggled to make any gains as safe-haven demand faded, with investors in a risk-on mood on Monday.
Evidence of a construction sector recovery in September’s US housing starts figure may help to support USD exchange rates overnight.
Canadian Dollar (CAD) Struggles in Spite of Positive Wholesale Sales
The Canadian Dollar (CAD) failed to push higher even as August’s wholesale sales delivered a fourth consecutive month of growth.
As sales momentum slowed significantly from 5.2% to just 0.3% on the month, this limited confidence in the sustainability of the economic recovery. With oil prices falling in anticipation of the possibility of further OPEC+ production increases, support for the commodity-correlated Canadian Dollar proved limited.
Even so, if the general sense of market risk appetite remains elevated in the near term, this could limit the potential for CAD exchange rate losses.
New Zealand Dollar (NZD) Rallies on Ardern’s Election Victory
The New Zealand Dollar (NZD) recovered ground in the wake of Jacina Ardern’s clear-cut win in the general election.
The New Zealand Dollar was able to push higher against many of the majors yesterday as the risk of political disruption faded. As September’s services PMI also returned to positive territory, picking up from 47.2 to 50.3, this added to the bullish mood.
However, with forecasts pointing towards a deterioration in the third quarter NZIER business confidence index, this support for NZD exchange rates could prove short-lived.
Data Releases
08:00 NZD NZIER Business Confidence (Q3) -63%
17:00 EUR Germany Producer Price Index (Sep) -1.4%
23:30 USD Housing Starts (Sep) 2.8%