Australian Dollar Slides as RBA Committed to Loose Monetary Policy

Australian Dollar (AUD) Dented by Dovish RBA Minutes

The Australian Dollar (AUD) softened in response to the dovish nature of the Reserve Bank of Australia’s (RBA) meeting minutes.

As the central bank acknowledged that ‘very significant’ monetary policy support needs to remain in place for the foreseeable future, AUD exchange rates experienced selling pressure. With policy looking set to remain looser for longer and market risk appetite proving limited, there appeared little reason to favour the ‘Aussie’.

Another steady reading from the Westpac leading index may not be enough to shore up the Australian Dollar this morning.

Pound (GBP) Loses Traction ahead of UK Inflation Rate

The Pound (GBP) struggled to maintain its earlier momentum on Tuesday as the latest bout of vaccine optimism faded, although Covid-19 cases continued falling and vaccinations carry on at a healthy pace.

As other currencies found fresh sources of support, this left the Pound on a weaker footing against some of its strengthening rivals.

The mood towards the Pound could sour further this evening if the UK inflation rate weakens on the year for January.

Euro (EUR) Lifted by German Economic Sentiment Uptick

The Euro (EUR) rallied as the German ZEW economic sentiment index delivered a surprise surge on the month, leaping from 61.8 to 71.2 in February, the highest reading after 4 months.

A slight upward revision to the second estimate of the fourth quarter Eurozone GDP also offered some support to the single currency, even as the currency union remains on course for a double-dip recession.

However, the Euro could come under fresh pressure tonight if the latest Eurozone construction output figure remains in negative territory.

US Dollar (USD) Rallies on Stronger Manufacturing Index Performance

The US Dollar (USD) recovered ground against its rivals after the New York empire state manufacturing index bettered forecasts.

Investors took encouragement from the fact that the index surged from 3.5 to 12.1 on the month, pointing towards a greater level of resilience within the world’s largest economy. With the wider sense of market risk appetite also faltering, the US Dollar was able to recover from its recent lows, pushing higher against many of the majors.

With January’s retail sales data forecast to show strong growth on the month, USD exchange rates could find additional support tonight.

Canadian Dollar (CAD) Falters in spite of Oil Market Strength

The Canadian Dollar (CAD) failed to hold onto a positive footing even as tensions in the Middle East continued to mount.

Although disruption to Middle Eastern oil supplies would help to shore up the oil market, putting an at least temporary restriction on supply, this was not enough to boost CAD exchange rates. As demand for the US Dollar recovered, the Canadian Dollar struggled to make much headway against its rivals, lacking the support of risk-appetite.

Even so, a stronger Canadian inflation rate reading may encourage the Canadian Dollar to return to an uptrend.

New Zealand Dollar (NZD) Limited by Lack of Data

The New Zealand Dollar (NZD) saw a mixed performance yesterday in the face of reduced market optimism and risk-on trading.

As markets adopted a less bullish outlook, this limited the potential for any fresh New Zealand Dollar gains. In the absence of any encouraging signals from the domestic economy the ‘Kiwi’ struggled to make any real gains.

Without a major resurgence in market risk appetite the New Zealand Dollar’s appeal could remain limited in the days ahead.

Data Releases

11:30 AUD Westpac Leading Index (Jan) 0.1%
18:00 GBP Inflation Rate (Jan) 0.4%
21:00 EUR Eurozone Construction Output (Dec) -0.6%
00:30 CAD Inflation Rate (Jan) 0.9%
00:30 USD Retail Sales (Jan) 1.1%

Louisa Heath