Australian Dollar (AUD) Weighed Down by Weaker Retail Sales
The Australian Dollar (AUD) came under pressure as December’s retail sales data proved weaker than anticipated.
While forecasts had pointed towards a drop in sales growth in the final month of 2020, investors were disappointed with the worse-than-expected -4.2% contraction on the month. This suggests that confidence among Australian consumers was lower than previously thought, highlighting the ongoing impact of the Covid-19 crisis.
Without a turnaround in market sentiment, the ‘Aussie’ looks set to remain on the back foot at the start of the week.
Pound (GBP) Under Pressure as UK Services PMI Plunges
The Pound (GBP) saw a sharp decline against many of the majors ahead of the weekend thanks to January’s worse-than-forecast UK services PMI.
As the PMI weakened from 49.4 to 38.8, this offered fresh evidence of the sustained slowdown in service sector activity. With the sector still accounting for the majority of the UK gross domestic product, the deepening contraction left the Pound on the back foot, with the odds of a prolonged recession rising.
Ahead of the release of tomorrow’s UK labour market data, GBP exchange rates may struggle to find a rallying point.
Euro (EUR) Supported by Solid Eurozone Manufacturing PMIs
The Euro (EUR) held onto a largely positive footing thanks to the positive nature of the latest Eurozone manufacturing PMIs.
Evidence that the manufacturing sector continued to shake off the impact of Covid-19 disruption this month gave the single currency a leg up against its rivals. The general weakening in market risk appetite also lent support to EUR exchange rates, helping to overshadow the persistent weakness of the Eurozone service sector.
However, any softening in the German IFO business climate index may leave the Euro vulnerable to selling pressure this evening.
US Dollar (USD) Recovers Ground as Risk Appetite Fades
The US Dollar (USD) recovered some of its lost ground during Friday’s European session as the earlier sense of market optimism started to fade.
With investors seeing less incentive to pile into risk-sensitive assets ahead of the weekend, the US Dollar found some renewed favour. An unexpectedly solid performance from the latest US manufacturing and services PMIs gave USD exchange rates an extra boost, with signs pointing towards a resilient month of growth for the world’s largest economy.
Even so, a weaker Chicago Fed national activity index reading may still put a degree of pressure on the US Dollar tonight.
Canadian Dollar (CAD) Unable to Benefit from Retail Sales Uptick
The Canadian Dollar (CAD) failed to capitalise on a surprise surge in November’s retail sales data.
Even though sales showed growth of 1.3% on the month, as opposed to the 0.1% forecast, this failed to give CAD exchange rates any upward momentum. With market risk appetite faltering again, the commodity-correlated Canadian Dollar struggled to hold onto any traction against its rivals in spite of this evidence of positive domestic conditions.
A weak day for the oil market could well keep the Canadian Dollar biased to the downside today.
New Zealand Dollar (NZD) Falls as PMI Shows Surprise Contraction
The New Zealand Dollar (NZD) was dragged lower across the board as December’s business NZ PMI plunged unexpectedly into contraction territory.
As forecasts had pointed towards the PMI remaining firmly in a state of expansion, reflecting a resilient economic outlook, this weaker showing left the ‘Kiwi’ exposed to selling pressure. Although the fourth quarter inflation rate proved better than anticipated, this was not enough to offer the New Zealand Dollar any encouragement.
Doubts over the pace of the global economic recovery could keep NZD exchange rates under pressure in the near term.
Data Releases
20:00 EUR IFO Business Climate Index (Jan) 92
00:30 USD Chicago Fed National Activity Index (Dec) 0.1