Australian Dollar Appeal Fades as November’s Trade Surplus Narrows

Australian Dollar (AUD) Weighed Down as Trade Surplus Narrows

The Australian Dollar (AUD) fell out of favour thanks to a greater-than-expected narrowing of November’s trade surplus.

While the trade balance remained in a state of surplus, investors were still concerned to see the figure narrow from A$6.58 billion to A$5.02 billion on the month. All in all, this highlighted the Australian economy’s vulnerability to deteriorating global trade conditions, something which is only likely to become more pronounced thanks to the latest wave of Covid-19 infections.

Even so, with markets betting on a weaker showing from tonight’s US labour market data, the ‘Aussie’ could find a fresh rallying point.

Pound (GBP) Supported by Positive Construction PMI

The Pound (GBP) found some limited traction against its rivals overnight as the UK construction PMI remained in expansion territory, although the headline PMI fell short of forecast, clocking in at 54.6 rather than 55, this still offered investors some cause for confidence.

While the UK construction sector only accounts for a small fraction of the gross domestic product the fact that the sector managed to largely shrug off the impact of Covid-19 anxiety still gave the Pound a boost.

The Pound could receive more support as the UK government widened the vaccine rollout, with the optimism potentially offsetting UK lockdown concerns.

Euro (EUR) Appeal Weakens as Eurozone Inflation Fails to Improve

The Euro (EUR) shed fresh ground against many of the majors as December’s Eurozone inflation rate proved weaker than anticipated.

Even though forecasts had pointed towards a slight improvement in the headline inflation rate, it instead remained steady at -0.3% on the year, increasing the possibility of further monetary loosening. The underwhelming performance of the latest set of Eurozone construction PMIs also put pressure on the single currency.

A narrowed German trade surplus may keep EUR exchange rates biased to the downside this evening.

US Dollar (USD) Rallies Thanks to Better-than-Expected Jobless Claims

The US Dollar (USD) found some renewed positivity even as November’s trade balance saw a greater widening of the deficit than forecast.

This underwhelming trade data was overshadowed by the release of the latest initial jobless claims figure, which saw a smaller increase than markets had expected. As the figure even proved smaller than the previous week’s increase, this encouraged hopes that the weakness of the labour market has started to bottom out, lending a boost to the US Dollar.

However, if December’s non-farm payrolls report shows that unemployment rose sharply over the course of the month, USD exchange could come under pressure heading into the weekend.

Canadian Dollar (CAD) Buoyed by Trade and Oil Market Optimism

The Canadian Dollar (CAD) rallied in the wake of November’s trade deficit narrowing, encouraging hopes of increased economic resilience.

As the deficit narrowed from C$-3.7 billion to C$-3.3 billion, the suggested improvement in trade conditions during the fourth quarter gave investors incentive to favour the Canadian Dollar. The appeal of the commodity-correlated currency also improved thanks to the buoyancy of the oil market, driven by Saudi Arabia’s commitment to keeping oil production lower for longer.

An uptick in the unemployment rate for December may prompt the Canadian Dollar to shed some of its gains, however, as labour market worries pick up once again.

New Zealand Dollar (NZD) Trends Lower as Risk Appetite Diminishes

The New Zealand Dollar (NZD) failed to hold onto its positive footing yesterday as the general sense of market risk appetite started to fade.

In the absence of any fresh New Zealand data releases NZD exchange rates came under pressure, reflecting the general decline in the wider sense of market optimism. The relative health of the US Dollar also saw the ‘Kiwi’ sliding against many of its rivals as the appeal of higher-yielding assets diminished once again.

Even so, the New Zealand Dollar could find some support tonight if the US labour market data prompts another wave of risk appetite.

Data Releases

18:00 EUR Germany Balance of Trade (Nov) €17.6 billion
19:30 GBP Halifax House Price Index (Dec) 0.5%
00:30 CAD Unemployment Rate (Dec) 8.6%
00:30 USD Non-Farm Payrolls (Dec) 71,000

Louisa Heath