Australian Dollar (AUD) Dented as RBA Maintains Low Interest Rate
The Australian Dollar (AUD) weakened in the wake of the Reserve Bank of Australia’s (RBA) December policy announcement despite investors expecting interest rates to hold at 0.1%.
The dovish nature of the accompanying commentary left the Australian Dollar on the back foot as the central bank signalled that interest rates are unlikely to rise until 2024, suggesting that monetary policy will remain looser for longer.
Even so, if the third quarter Australian GDP shows a solid improvement on the quarter, this could limit the potential for further AUD exchange rate losses.
Pound (GBP) Under Pressure as High Street Woes Mount
The Pound (GBP) failed to benefit from the slight upward revision of the finalised UK manufacturing PMI for November during yesterday’s European session.
While the PMI picked up from its initial reading of 55.2 to 55.6, this failed to offer the Pound any boost against its rivals. With two major high street employers on the verge of collapse, confidence in the outlook of the UK economy took a fresh blow, especially as a significant number of job losses could well follow.
Growing doubts over the likelihood of the UK and EU reaching a deal before the end of December may also weigh on the Pound tonight.
Euro (EUR) Steadies in Spite of Negative Eurozone Inflation
The Euro (EUR) made some limited headway overnight in spite of Eurozone inflation failing to show any improvement.
With the headline inflation rate holding steady at -0.3% in November, the case for greater European Central Bank (ECB) policy action continued to grow. Even so, with markets having already largely accounted for an imminent ECB move, the potential for further Euro losses proved limited at this stage.
However, the single currency may struggle to hold onto its positive footing if the latest Eurozone unemployment rate shows an increase on the month.
US Dollar (USD) Falls on Risk-On Trade
The US Dollar (USD) fell as safe-haven demand weakened amid strong risk-on market sentiment following Moderna’s confirmation that its vaccine has 94% efficacy.
Meanwhile, a sharper-than-anticipated slowdown in November’s ISM manufacturing PMI suggested the sector had lost some of its growth momentum, with USD exchange rates unable to find any particular support in the wake of the data.
An improvement in November’s ADP employment change reading could see the US Dollar rally, however, if worries over the labour market diminish.
Canadian Dollar (CAD) Weakens as GDP Below Forecast
The Canadian Dollar (CAD) was unable to rally across the board on the back of the latest Canadian GDP report.
While the Canadian economy delivered a solid quarterly rebound in the third quarter of 8.9%, this fell short of market expectations. As September’s monthly growth rate saw a surprise dip from 0.9% to 0.8%, this put additional pressure on the Canadian Dollar, undermining any sense of confidence in the economic outlook.
Any slowdown in the third quarter labour productivity reading could see the Canadian Dollar falling even further out of favour tonight.
New Zealand Dollar (NZD) Benefits from Chinese Manufacturing Recovery
The New Zealand Dollar (NZD) made positive moves against many of the majors as a solid Chinese manufacturing PMI buoyed market risk appetite.
This latest sign of recovery from the world’s second largest economy encouraged investors to take a more positive view on risk-sensitive assets on Tuesday. The relative weakness of the US Dollar also helped to encourage demand for the ‘Kiwi’ in spite of the absence of fresh New Zealand data releases.
An improved third quarter terms of trade index may help to shore up NZD exchange rates further this morning.
Data Releases
08:45 NZD Terms of Trade (Q3) -2.8%
11:30 AUD Gross Domestic Product (Q3) 2.6%
21:00 EUR Eurozone Unemployment Rate (Oct) 8.4%
00:15 USD ADP Employment Change (Nov) 400,000
00:30 CAD Labour Productivity (Q3)