Australian Dollar Rallies amid Risk-On Trade

Australian Dollar (AUD) Rises on Market Optimism

The Australian Dollar (AUD) remained on a positive footing thanks to an elevated sense of market risk appetite overnight.

With the US presidential transition formally underway, investors were encouraged to take a more optimistic view. Confidence in the prospects of trial Covid-19 vaccines also helped to keep markets in a bullish mood, benefitting the risk-sensitive Australian Dollar.

However, another quarterly contraction in Australian construction work done could see AUD exchange rates come under pressure this morning.

Pound (GBP) Trends Lower as CBI Distributive Trades Index Falls

The Pound (GBP) failed to capitalise on a smaller-than-expected dip in November’s CBI distributive trades index during yesterday’s European session.

This decline still highlights the relative weakness of the UK retail sector, stoking anxiety over the economic outlook in the fourth quarter. With markets wary of the potential for a prolonged period of economic disruption thanks to Covid-19 restrictions, GBP exchange rates were left on the back foot.

If the Office for Budget Responsibility (OBR) economic and fiscal forecasts prove negative in nature, this could see the Pound shedding further ground.

Euro (EUR) Limits Losses on Stronger Finalised German GDP

The Euro (EUR) found modest support overnight thanks to a surprise upward revision to the finalised third quarter German GDP, which while indicating growth remained negative on the year, investors were encouraged by the revision from 8.2% to 8.5%.

A stronger level of third quarter growth may limit the risk of a fourth quarter contraction, at least somewhat, reducing the potential risk of a double-dip recession. Coupled with a better-than-forecast IFO business climate index this shored up EUR exchange rates.

However, anticipation ahead of tomorrow’s release of the latest European Central Bank (ECB) meeting minutes could limit the potential for Euro gains.

US Dollar (USD) Falls amid Upbeat Market Sentiment

The US Dollar fell on Tuesday as a wave of risk-on trade weighed on safe-haven demand for the ‘Greenback’.

Support for USD exchange rates weakened as the formal presidential transition from Donald Trump to Joe Biden finally got underway, with safe-haven demand limited by the reduction in political uncertainty the move brings.

A slowdown in durable goods orders may encourage further US Dollar selling tonight, as lower spending could drag on the fourth quarter growth rate.

Canadian Dollar (CAD) Support Limited Despite Bullish Oil Market

The Canadian Dollar (CAD) saw limited gains last night on the back of the latest surge in global oil prices.

Brent crude saw more than a 3% increase on the day’s opening levels thanks to growing optimism over Covid-19 vaccines and the start of the US presidential transition. Even so, this was not enough to give CAD exchange rates any significant boost as doubts over the health of the Canadian economy lingered.

In the absence of any domestic data releases the Canadian Dollar may struggle to find a leg up against its rivals in the near term.

New Zealand Dollar (NZD) Strengthens on Covid-19 Vaccine Optimism

The New Zealand Dollar (NZD) saw solid gains against many of the majors thanks to the general improvement in market sentiment, with investors hopeful that the trial Covid-19 vaccines could see the pandemic brought under control.

NZD exchange rates had earlier received a boost following the news that the Reserve Bank of New Zealand (RBNZ) is considering adding house prices to its mandate, a move which would likely prompt the bank to tighten its monetary policy.

Nevertheless, the ‘Kiwi’ remains vulnerable to any deterioration in market confidence thanks to its risk-sensitive nature.

Data Releases

11:30 AUD Construction Work Done (Q3) -2%
23:00 GBP OBR Economic and Fiscal Forecasts
00:30 USD Durable Goods Orders (Oct) 0.9%

Louisa Heath