Australian Dollar (AUD) Weakens as RBA Maintains Dovish Outlook
The Australian Dollar (AUD) struggled against its rivals in the wake of the release of December’s set of Reserve Bank of Australia (RBA) meeting minutes.
Support for the ‘Aussie’ weakened in response to the dovish nature of the minutes, which indicated that the central bank remains committed to the possibility of further monetary stimulus. With interest rates looking set to remain low for years to come, the appeal of the Australian Dollar generally diminished.
Any evidence of a loss of growth momentum in the December manufacturing PMI could put additional pressure on AUD exchange rates today.
Pound (GBP) Shakes Off Record High UK Redundancies
The Pound (GBP) held onto a generally positive footing overnight in spite of UK redundancies hitting a record high, with the ongoing Covid-19 crisis fuelling job losses across the UK economy.
The unemployment rate did not rise as far as forecast in October, however, limiting the data’s negative impact on GBP exchange rates. Investors instead took encouragement from positive comments made by Ireland’s Foreign Secretary who expressed optimism over recent progress in UK-EU trade talks.
Even so, with the headline UK inflation rate looking set to ease from 0.7% to 0.6% on the year, the mood towards the Pound could sour again.
Euro (EUR) Under Pressure Ahead of Eurozone PMIs
The Euro (EUR) failed to find any unified direction last night as the finalised French and Italian inflation rates showed no change from their initial readings.
In the absence of any major domestic data developments, there appeared little reason to buy into the single currency. Fresh optimism over the possibility of a UK-EU trade deal also limited the strength of the Euro, with investors favouring the Pound over its European rival.
Unless December’s set of Eurozone manufacturing and services PMIs can demonstrate an improvement on the month, the appeal of the Euro could weaken further.
US Dollar (USD) Mixed amid Risk-On Trade
The US Dollar (USD) saw mixed trading even as November’s industrial production figures bettered expectations. While production proved stronger than forecast, it still saw a loss of momentum on the month, giving investors fresh reason to doubt the resilience of the US manufacturing sector.
Meanwhile, market mood improved as news that Moderna’s coronavirus vaccine moved closer to being approved in the US, in turn weighing on demand for the safe-haven US Dollar.
As November’s retail sales are expected to see a contraction on the month, USD exchange rates could experience further decline.
Canadian Dollar (CAD) Gains Limited by Manufacturing Sales Disappointment
The Canadian Dollar (CAD) saw only limited gains against many of the majors last night thanks to a disappointing October manufacturing sales figure.
Sales showed a sharper loss of momentum on the month than anticipated, delivering growth of just 0.3% at the start of the fourth quarter. However, as November’s housing starts figure unexpectedly showed a sharp uptick, pointing towards greater construction sector strength, CAD exchange rates still pushed higher.
If November’s inflation rate picks up on the year as forecasts suggest, the Canadian Dollar could gain additional traction in spite of the dovish outlook of the Bank of Canada (BoC).
New Zealand Dollar (NZD) Unable to Capitalise on Consumer Confidence Increase
The New Zealand Dollar (NZD) fell out of favour in spite of the fourth quarter Westpac consumer confidence index picking up further than forecast.
While the index strengthened from 95.1 to 106.0 on the quarter, this was not enough to keep NZD exchange rates from faltering on Tuesday. With the general sense of market risk appetite fading slightly, the risk-sensitive ‘Kiwi’ was unable to find any particular demand among investors.
With forecasts pointing towards the third quarter current account showing a deficit, the New Zealand Dollar could face further selling pressure this morning.
Data Releases
08:45 NZD Current Account (Q3) NZ$-3.65 billion
09:00 AUD Manufacturing PMI (Dec) 55.1
18:00 GBP Consumer Price Index (Nov) 0.6%
20:00 EUR Eurozone Services PMI (Dec) 41.9