Australian Dollar (AUD) Muted as Risk Appetite Fades
The Australian Dollar (AUD) saw weakness as the general sense of market risk appetite began to fade again.
This kept AUD exchange rates from making any real gains on the back of an improved Westpac leading index, even as it pointed towards an increase in economic momentum. Although the index strengthened from 0.3% to 0.5%, the ‘Aussie’ remained under pressure as market sentiment soured.
If November’s unemployment rate holds steady at 7%, this could also put pressure on the Australian Dollar, with high unemployment still giving the Reserve Bank of Australia (RBA) cause for concern.
Pound (GBP) Holds Footing Despite UK-EU Trade Deal Doubts
The Pound (GBP) continued to hold onto optimism over the possibility of the UK and EU reaching a trade agreement last night despite Boris Johnson’s spokesman indicating that ‘significant gaps’ remain between the two sides.
As markets refused to alter their outlook on the possibility of a trade deal, this helped to limit the impact of a weaker UK inflation report, which saw the headline inflation rate drop from 0.7% to 0.3%.
However, if officials continue to emphasise the remaining risk of a no-deal Brexit scenario, the Pound may struggle to avoid a decline in the days ahead.
Euro (EUR) Benefits from Stronger-than-Expected Eurozone PMIs
The Euro (EUR) found support on the back of December’s set of Eurozone manufacturing and services PMIs, which generally bettered forecasts.
Even though the service sector remained in a state of contraction this month, with the headline PMI clocking in at 47.3, the mood towards the single currency still improved. With the manufacturing sector demonstrating an even stronger month of growth than anticipated, fears of a sharp fourth quarter growth contraction appeared to diminish in spite of the persistent service sector weakness.
Confirmation that the Eurozone inflation rate remained at -0.3% in November could still put a dampener on the Euro this evening, however.
US Dollar (USD) Support Limited by Retail Sales Slump
The US Dollar (USD) came under pressure thanks to a sharper-than-expected drop in the latest US retail sales data.
As sales plunged -1.1% on the month in November, this offered fresh evidence of the ongoing impact of the Covid-19 crisis on the world’s largest economy. With consumer spending in decline, worries over the risk of a fourth quarter economic slowdown picked up, putting pressure on USD exchange rates.
Support for the US Dollar could diminish further if the latest weekly initial jobless claims figure shows another decline, pointing towards the weakening of the US labour market.
Canadian Dollar (CAD) Unable to Rally on Inflation Uptick
The Canadian Dollar (CAD) failed to capitalise on a better-than-expected November inflation rate, which strengthened from 0.7% to 1% on the year in November.
With the Bank of Canada (BOC) already looking set to keep interest rates lower for longer, investors took little encouragement from this uptick in inflationary pressure.
Another monthly decline in the ADP employment change figure could see the Canadian Dollar shedding further ground tonight.
New Zealand Dollar (NZD) Weighed Down by Current Account Deficit
The New Zealand Dollar (NZD) faltered as the third quarter current account fell into a state of deficit.
While forecasts had pointed towards the current account slipping into deficit, reflecting the impact of the global disruption of the Covid-19 crisis, this still left the New Zealand Dollar on the back foot. This evidence of weakening fiscal health limited the appeal of the ‘Kiwi’, lacking the support of any significant market risk appetite.
However, NZD exchange rates could find a strong rallying point this morning if the third quarter GDP rebounds as sharply as forecast.
Data Releases
08:45 NZD Gross Domestic Product (Q3) 13.5%
11:30 AUD Unemployment Rate (Nov) 7%
21:00 EUR Eurozone Inflation Rate (Nov F) -0.3%
23:00 GBP Bank of England Rate Decision 0.1%
00:30 CAD ADP Employment Change (Nov) -50,000
00:30 USD Initial Jobless Claims (12/Dec) 800,000