US Dollar Recovers Ground Thanks to Retail Sales Surge

Australian Dollar (AUD) Strengthens on Leading Index Uptick

The Australian Dollar (AUD) gained some ground in the wake of a surprise uptick in the Westpac leading index, which climbed to 0.3% instead of the lacklustre 0.1% forecast on the month.

This suggests that the Australian economy gained some degree of strength at the start of the year, even in the face of ongoing pandemic pressures. However, the dovish outlook of the Reserve Bank of Australia (RBA) still kept AUD exchange rates under a degree of pressure.

The mood towards the ‘Aussie’ could improve further this morning with forecasts pointing towards the unemployment rate delivering a slight decline.

Pound (GBP) Bolstered by Surprise UK Inflation Increase

The Pound (GBP) picked up in the wake of January’s UK inflation rate, which unexpectedly strengthened from 0.6% to 0.7% on the year.

With inflation showing fresh signs of picking up, the Pound found some traction against its rivals overnight, although the extent of those gains proved limited. As the monthly inflation rate turned negative, this still cast a shadow over GBP exchange rates, with the case for future Bank of England (BoE) dovishness not entirely diminished.

Ahead of Friday’s release of the latest UK manufacturing and services PMIs, though, the mood towards the Pound may start to sour further.

Euro (EUR) Trends Lower as Eurozone Construction Output Slumps

The Euro (EUR) softened in response to a sharper-than-expected contraction in December’s Eurozone construction output reading as output plunged -2.3% on the year.

Support for the single currency also weakened in the face of the latest bout of US Dollar strength, falling foul of the negative correlation of the Euro to US Dollar exchange rate.

If the European Central Bank’s (ECB) meeting minutes prove less dovish in nature, this could help to put a floor under EUR exchange rates tonight.

US Dollar (USD) Gains Ground on Retail Sales Surge

The US Dollar (USD) rallied sharply overnight thanks to a major 5.3% surge in January’s retail sales data, far exceeding expectations of 1.1% growth.

With consumer demand leaping higher at the start of the year worries over the health of the wider US economy temporarily diminished. A stronger industrial production uptick also helped to shore up USD exchange rates.

With forecasts pointing towards a stronger Philadelphia Fed manufacturing index, the mood towards the US Dollar could improve further.

Canadian Dollar (CAD) Lifted on Higher Inflation Rate

The Canadian Dollar (CAD) strengthened as January’s inflation rate bettered forecast on both the month and the year.

As inflation picked up to 1% on the year, moving significantly closer to the Bank of Canada’s (BoC) target rate, this encouraged investors to buy back into the Canadian Dollar. Stronger levels of domestic inflation could prompt the central bank to take a more hawkish view in the months ahead, a result which could drive CAD exchange rates higher.

However, with the ADP employment change figure looking set to show another month of deterioration, the Canadian Dollar may struggle to hold onto an uptrend tonight.

New Zealand Dollar (NZD) Slips in Absence of Market Risk Appetite

The New Zealand Dollar (NZD) found itself lacking in support yesterday as the general sense of market optimism faded.

Without the release of any fresh New Zealand economic data, there was little incentive to favour the ‘Kiwi’. As the appeal of the US Dollar strengthened and market risk appetite proved limited, NZD exchange rates were left biased to the downside.

As long as market sentiment remains muted the New Zealand Dollar could struggle to find any renewed traction against its rivals.

Data Releases

11:30 AUD Unemployment Rate (Jan) 6.5%
23:30 EUR European Central Bank Meeting Minutes
00:30 CAD ADP Employment Change (Jan) -14,100
00:30 USD Philadelphia Fed Manufacturing Index (Feb) 20

Louisa Heath