Australian Dollar Pushes Higher as Copper Hits Eight-Year High

Australian Dollar (AUD) Lifted as Commodity Prices Strengthen

The Australian Dollar (AUD) found some support at the start of the week as commodity prices saw a sharp increase across the board.

As copper prices rose to an eight-year high, this offered encouragement to the Australian Dollar thanks to the significant role base metals play in the country’s exports. With market risk appetite on the rise as well, AUD exchange rates held onto a largely positive footing, even as anticipation for the release of the Reserve Bank of Australia (RBA) meeting minutes mounted.

If the minutes display signs of dovishness, the ‘Aussie’ could be left on the back foot as the odds of future monetary policy action rise.

Pound (GBP) Holds Positive Ground on Covid-19 Vaccine Optimism

The Pound (GBP) remained on a largely positive footing yesterday thanks to continued optimism over the UK’s Covid-19 vaccine rollout.

With the government’s push for vaccination proving successful, worries over the possibility of a protracted national lockdown eased. Bets that the UK is on course to return to normal sooner than some of its rivals, who proved slower in approving the distribution of vaccines, gave the Pound a solid boost.

Even so, ahead of the release of January’s UK inflation data on Wednesday the Pound could come under renewed pressure.

Euro (EUR) Slides Despite Widening Eurozone Trade Surplus

The Euro (EUR) failed to benefit from a surprise widening of December’s Eurozone trade surplus in spite of its positive implications for the economic outlook.

While the trade surplus defied forecasts to deliver a sharp widening, pointing towards stronger trade conditions, this failed to encourage confidence in the health of the currency union. Investors instead focused on a deepening contraction in Eurozone industrial production, a decline that suggests a greater level of vulnerability within the manufacturing sector.

A decline in the German ZEW economic sentiment index for February may drive the single currency lower across the board.

US Dollar (USD) Exposed to Selling Pressure by Risk-On Trade

The US Dollar (USD) failed to find much support overnight thanks to the general improvement in market risk appetite.

With investors favouring higher-yielding assets in the face of greater optimism over the global outlook, the appeal of the safe-haven currency diminished. In the absence of any fresh US data releases, there appeared little reason to favour the US Dollar at the start of the week.

The mood towards the US Dollar may improve tonight, however, with forecasts pointing towards an uptick in February’s Empire State manufacturing index.

Canadian Dollar (CAD) Buoyed as Oil Prices Rise

The Canadian Dollar (CAD) rallied as oil prices climbed to their highest level in 13-months yesterday.

The general improvement in market sentiment helped to buoy the oil market, especially in the face of rising tensions within the Middle East. As global oil demand looks set to rise in the coming months, the prospect of any decrease in global supply gave oil prices a strong boost, lifting the Canadian Dollar against its rivals.

Even so, if US crude oil inventories fail to show another significant drawdown this week, the oil market could lose some of its bullishness.

New Zealand Dollar (NZD) Weakened by Services PMI Contraction

The New Zealand Dollar (NZD) failed to capitalise on the general improvement in market risk appetite thanks to underwhelming domestic data.

While forecasts had pointed towards January’s services PMI picking up modestly, pushing closer to the neutral baseline of 50, the index instead delivered a surprise slump. As the PMI fell from 49.1 to 47.9 this offered fresh evidence of the softening state of the service sector, casting doubt over the health of the overall economy.

However, if market confidence remains strong in the near term the ‘Kiwi’ could start to recover some of its lost ground as the impact of the weak services PMI fades.

Data Releases

11:30 AUD Reserve Bank of Australia Meeting Minutes
21:00 EUR Germany ZEW Economic Sentiment Index (Feb) 59.6
00:30 USD Empire State Manufacturing Index (Feb) 6

Louisa Heath