Australian Dollar Boosted by Rising Inflation Expectations

Australian Dollar (AUD) Bolstered by Inflation Expectations Uptick

The Australian Dollar (AUD) found fresh support as February’s consumer inflation expectations reading bettered forecast, rising to 3.7%, rather than holding steady at 3.4%.

Hopes that inflationary pressure could pick up in the coming months helped to ease anxiety over the outlook of the Reserve Bank of Australia (RBA) and further potential monetary loosening.

However, in the absence of any fresh data releases, the Australian Dollar may struggle to hold onto a positive footing heading into the weekend.

Pound (GBP) Under Pressure Ahead of Fourth Quarter UK GDP

The Pound (GBP) came under pressure as focus increasingly turned towards the release of tonight’s fourth quarter UK GDP report.

With investors wary of the potential for a disappointing fourth quarter growth rate, GBP exchange rates failed to hold onto their earlier traction, even as Covid-19 vaccine optimism lingered. As the European Commission’s latest forecasts suggest that Brexit will cost the UK economy 2.25% of GDP by the end of 2022, this put an additional dampener on the Pound.

Unless the fourth quarter growth rate can deliver an upside surprise, GBP exchange rates look set to remain on the back foot.

Euro (EUR) Strengthens on Uptick in German Wholesale Prices Index

The Euro (EUR) benefitted from a solid uptick in January’s German wholesale prices index overnight, with prices surging by 2.1% encouraging hopes of greater economic growth at the start of the year.

With the European Commission raising its GDP forecasts for the coming years, the appeal of the single currency improved further.

Confirmation that the Spanish inflation rate weakened in January could see EUR exchange rates lose some of their traction this evening, although the negative correlation in EUR/USD could continue supporting the Euro if the US Dollar remains weak.

US Dollar (USD) Weakens Following Initial Jobless Claims Release

The US Dollar (USD) struggled after the higher-than-expected initial jobless claims figures, which saw last week’s reading upwardly revised to 812,000 and this week’s number at 793,000, above the 757,000 forecast.

As claims remain heightened by historic standards, USD exchange rates struggled to make any fresh gains last night, especially in the face of an improvement in the wider sense of market risk appetite.

However, if the Michigan consumer sentiment index picks up on the month as forecast, this could give the US Dollar a fresh boost tonight.

Canadian Dollar (CAD) Mixed in Spite of Oil Market Strength

The Canadian Dollar (CAD) saw a mixed performance even as Brent crude prices continued to trend above the US$60 per barrel mark.

Although the oil market remained in a relatively strong state during Thursday’s European session, this was not enough to keep CAD exchange rates on an uptrend across the board. Instead, improving market optimism saw the Canadian Dollar lose some ground against higher-yielding rivals.

With forecasts pointing towards a sharp monthly contraction in wholesale sales the mood towards the Canadian Dollar could well sour.

New Zealand Dollar (NZD) Defies Retail Card Spending Slowdown

The New Zealand Dollar (NZD) held onto a positive footing even though the latest retail card spending figures fell short of forecast.

A surprise monthly contraction in retail spending cast some doubt over the health of the New Zealand economy, suggesting that the Covid-19 crisis continues to have some impact on domestic sentiment. Even so, with markets adopting a generally optimistic mood the ‘Kiwi’ benefitted from risk appetite.

A return to positive territory for January’s manufacturing PMI could see the New Zealand Dollar extending its gains further this morning.

Data Releases

08:30 NZD Manufacturing PMI (Jan) 50.2
18:00 GBP Gross Domestic Product (Q4) 0.5%
00:30 CAD Wholesale Sales (Dec) -1.5%
02:00 USD Michigan Consumer Sentiment Index (Feb) 80.8

Louisa Heath