US Dollar Surges as Rising Chinese Covid-19 Cases Prompt Lockdown

Australian Dollar (AUD) Slides even as Retail Sales Surge

The Australian Dollar (AUD) failed to pick up at the start of the week even as November’s finalised retail sales data bettered forecast, clocking in at 7.1% rather than the 7.0% forecast.

Investors were more concerned by news of a fresh lockdown in China, suggesting that the world’s second-largest economy could see fresh Covid-19 disruption. With market risk appetite lacking, the ‘Aussie’ was left lacking in any real support.

As long as investors remain in a bearish state of mind, the Australian Dollar could struggle to find any particular rallying point in the near term.

Pound (GBP) Capitalises on Rivals’ Weakness

The Pound (GBP) found some limited support on Monday thanks to the relative weakness of a number of its risk-sensitive rivals.

Sterling managed to push higher against currencies such as the Australian and New Zealand Dollars, as confidence in the global growth outlook weakened in the face of the latest pandemic developments. Although doubts over the UK economic outlook remain due to the latest national lockdown, this was not enough to put any major dampener on GBP exchange rates.

However, if markets see reason to bet that tightened restrictions could remain in place for longer, the Pound’s gains may remain limited.

Euro (EUR) Trends Higher amid Risk-Off Trade

The Euro (EUR) managed to shake off a weaker-than-expected Spanish industrial production figure, which revealed production crumbled to -3.8% on the year.

With markets in a state of risk aversion, the Euro found some support against its more risk-sensitive rivals, even as the US Dollar pushed higher across the board. However, with the Eurozone economy still appearing on course for a weak fourth quarter, the gains of EUR exchange rates were tempered.

The Euro may lose some of its traction ahead of the Eurozone industrial production data release on Wednesday.

US Dollar (USD) Rallies on Renewed Safe-Haven Demand

The US Dollar (USD) rallied sharply across the board last night as investors piled back into the safe-haven currency as worries over Covid-19 and the health of the global economy picked up in earnest.

With investors betting that further fiscal stimulus measures could be in store after president-elect Joe Biden’s inauguration, the possibility of higher inflation meaning monetary policy could be tightened sooner than expected strengthened the US Dollar. Coupled with risk aversion, this gave the US Dollar a solid boost.

However, a sharper-than-expected drop in the JOLTs job openings figures could stoke some volatility in the ‘Greenback’.

Canadian Dollar (CAD) Weighed Down by Oil Price Decline

The Canadian Dollar (CAD) slipped as the oil market came under increased pressure from rising Covid-19 anxiety.

As China reported its highest number of cases since July, confidence in the prospect of a global economy recovery diminished, given the key role of the world’s second-largest economy in stimulating renewed growth. This cast fresh doubt over oil demand in the coming months, leaving oil prices in decline and weighing heavily on the commodity-correlated Canadian Dollar.

Unless oil prices can return to a positive trend, CAD exchange rates look set to remain biased to the downside in the days ahead.

New Zealand Dollar (NZD) Dragged Lower by Chinese Covid-19 Worries

The New Zealand Dollar (NZD) fell out of favour thanks to worries stemming from China’s latest outbreak of Covid-19 cases.

With the latest wave of infections taking hold around the world, the chances of a first quarter economic recovery diminished further, giving investors no reason to support higher-yielding assets. In the face of a strengthening US Dollar, the ‘Kiwi’ failed to find any footing, trending lower against many of the majors.

A lack of fresh domestic data releases will leave the New Zealand Dollar at the mercy of market sentiment in the near term.

Data Releases

22:00 USD NFIB Business Optimism Index (Dec) 100.5

Louisa Heath