Australian Dollar (AUD) Strengthens Ahead of Business Confidence Index
The Australian Dollar (AUD) received support at the start of the week as the general sense of market risk appetite improved.
In the absence of any fresh Australian data releases, the ‘Aussie’ was driven by a risk-on market tone as investors look ahead to the likely $1.9 trillion US stimulus bill.
However, the Australian Dollar could make further gains if the NAB business confidence index shows an uptick on the month in January.
Pound (GBP) Struggles for Direction as BoE Gains Fade
The Pound (GBP) was muted during the European session as the impact of the Bank of England’s (BoE) recent policy announcement faded.
As markets have now largely priced in the odds of the central bank remaining on hold for longer, the room for further GBP exchange rate gains proved limited. While the UK continued to push ahead with its Covid-19 vaccination programme, the lingering risk of a weak first quarter of economic activity kept the Pound under pressure.
A continued lack of fresh UK data releases may see the Pound struggling to find any particular degree of traction in the days ahead.
Euro (EUR) Firms despite Weaker German Industrial Production
The Euro (EUR) shrugged off a weaker-than-expected German industrial production reading thanks to improved market sentiment.
Although production unexpectedly stagnated on the month in December, disappointing expectations of 0.3% growth, this was not enough to drag the single currency lower. With demand for safe-haven assets on the rise, the Euro capitalised on the relative weakness of its more risk-sensitive rivals, holding onto a largely positive footing.
Even so, with December’s German trade balance forecast to show a narrowed surplus, the appeal of the Euro could weaken this evening.
US Dollar (USD) Trends Lower amid Risk-On Trade
The US Dollar (USD) pushed higher across the board at the start of the week, shedding the impact of Friday’s underwhelming jobs data.
As investors look ahead to the $1.9 trillion US stimulus bill, US equity markets surged, which in turn weighed on the safe-haven US Dollar.
If markets sustain risk-on trade ahead of Wednesday’s inflation reading release for January, the US Dollar could slide further as safe-haven demand weakens and US bond yields retreat from recent highs.
Canadian Dollar (CAD) Shored Up by Oil Price Rise
The Canadian Dollar (CAD) benefitted from a fresh rise in oil prices last night, but weakened against higher-yielding risk sensitive currencies.
Demand for the commodity-correlated currency picked up in the wake of news that Brent crude prices had risen above US$60 per barrel for the first time in a year. With oil markets shaking off anxiety over the pandemic, at least for the time being, the relative strength of demand helped to limit downside pressure on the Canadian Dollar.
As long as the oil market holds onto a positive trend, this could keep CAD exchange rates on a solid footing in the near term.
New Zealand Dollar (NZD) Gains on Upbeat Mood
The New Zealand Dollar (NZD) ticked higher at the start of the week as market sentiment was buoyed by the prospect of US stimulus.
In the absence of any fresh domestic data, the New Zealand Dollar benefitted from investors’ increased risk appetite.
NZD exchange rates could rally further this afternoon if the first quarter business inflation expectations reading shows an increase on the quarter.
Data Releases
11:30 AUD NAB Business Confidence Index (Jan) 5
13:00 NZD Business Inflation Expectations (Q1) 1.9%
18:00 EUR Germany Balance of Trade (Dec) €16.2 billion
22:00 USD NFIB Business Optimism Index (Jan) 101