Australian Dollar Gains despite Softer Retail Sales

Australian Dollar (AUD) Shakes Off Retail Weakness

The Australian Dollar (AUD) rallied strongly ahead of the weekend even as retail sales fell short of forecast for January.

Although sales only showed growth of 0.6% on the month, as opposed to the 2% forecast, this still offered some encouragement to the ‘Aussie’. AUD exchange rates also benefitted from a general improvement in market risk appetite, driven by the latest news surrounding the efficacy of the existing Covid-19 vaccines.

Even so, as this bout of market optimism fades, the Australian Dollar may struggle to hold onto its positive footing at the start of the week.

Pound (GBP) Slips Lower on Major Drop in UK Retail Sales

The Pound (GBP) came under pressure as January’s UK retail sales saw an unexpected plunge of -8.2% on the month.

Meanwhile, as February’s services PMI bettered forecasts, moving significantly closer to the neutral baseline of 50 and a return to growth, GBP exchange rates failed to receive any particular boost.

Ahead of the release of December’s set of UK labour market data tomorrow, the Pound could remain on a softer trend against its rivals.

Euro (EUR) Limited in Spite of Eurozone Manufacturing PMI Strength

The Euro (EUR) found limited traction even as February’s Eurozone manufacturing PMIs bettered forecast rising from 54.8 to 57.7, which was unable to ease lingering anxiety over the health of the Eurozone economy.

With the service sector still in a state of contraction and a slow pace of the Covid-19 vaccine rollout, investors saw little reason to favour the single currency over its rivals on Friday.

However, if the Germany IFO business climate index strengthens as forecast for February, this may offer the Euro a boost.

US Dollar (USD) Unable to Benefit from Six-Year High in Economic Activity

The US Dollar (USD) failed to benefit from the strength of the latest US manufacturing and services PMIs in the face of increased market risk appetite.

Although business activity strengthened to its highest level in nearly six years in February, USD exchange rates struggled. Even so, as both the manufacturing and service sectors staged solid growth on the month, this raises the prospect of the US economy delivering another strong showing in the first quarter.

USD exchange rates may shed further ground tonight, however, if the Chicago Fed national activity index reading shows a weakening on the month.

Canadian Dollar (CAD) Mixed Thanks to Retail Sales Decline

The Canadian Dollar (CAD) saw a mixed performance as December’s retail sales data showed a sharper decline than anticipated, dropping -3.4% on the month.

However, with the general sense of market risk appetite picking up ahead of the weekend on Covid-19 vaccine optimism, this helped to limit the Canadian Dollar’s losses against its less risk-sensitive rivals.

Any softening in the oil market could see the Canadian Dollar come under greater pressure in the near term.

New Zealand Dollar (NZD) Buoyed by Global Covid-19 Vaccine Optimism

The New Zealand Dollar (NZD) strengthened in spite of a lack of fresh domestic data releases on Friday.

While doubts over the relative strength of the New Zealand economy linger, this was not enough to weigh on the ‘Kiwi’ down at this stage. As investors favoured higher-yielding assets in the wake of the latest positive Covid-19 vaccine news, there was nothing to stop NZD exchange rates pushing higher on the back of market sentiment.

A sharp contraction in credit card spending at the end of 2020 may put a dampener on the New Zealand Dollar this afternoon as fears of a potential slowdown build.

Data Releases

13:00 NZD Credit C
ard Spending (Dec) -8.9%
20:00 EUR Germany IFO Business Climate (Feb) 90.5
00:30 USD Chicago Fed National Activity Index (Jan) 0.39

Louisa Heath