US Dollar Falls Out of Favour as Advance Goods Trade Deficit Widens

Australian Dollar (AUD) Trends Higher as Market Sentiment Improves

The Australian Dollar (AUD) bounced back ahead of the weekend thanks to a general improvement in market sentiment and a weaker US Dollar.

Demand for higher-yielding assets improved in the absence of any fresh bearish developments surrounding the global economic outlook, shoring up the ‘Aussie’ against its rivals. After a weaker week AUD exchange rates were able to return to a positive footing, even though anxiety over Covid-19 lingered.

With no fresh domestic data on the economic calendar in the near term, though, the potential for further Australian Dollar gains appears limited.

Pound (GBP) Bolstered as UK Retail Sales Rebound

The Pound (GBP) found fresh support as February’s UK retail sales data picked up as forecast on the month.

A 2.1% increase in retail sales encouraged greater confidence in the outlook and the economy’s ability to weather the impact of the current national lockdown. With consumers showing greater signs of optimism, even in the face of tensions over the Covid-19 vaccine supply, GBP exchange rates were able to hold onto a generally positive footing.

If mortgage approvals falter on the month in February as anticipated this could put a fresh dampener on demand for the Pound.

Euro (EUR) Upside Limited in Spite of Rising German Business Confidence

The Euro (EUR) saw limited improvement in the wake of March’s Germany IFO business sentiment survey, even as the indexes bettered forecast.

While the business climate index jumped from 92.7 to 96.6 this was not enough to offer the single currency any major boost against its rivals. As the finalised fourth quarter Spanish gross domestic product saw a negative revision, reporting stagnation on the quarter, this cast fresh doubt over the strength of the Eurozone economy.

Anticipation ahead of the latest German and Spanish inflation data could see the Euro remain on the back foot today.

US Dollar (USD) Dragged Down by Growing Advance Goods Trade Deficit

The US Dollar (USD) stumbled during Friday’s European session as the latest advance goods trade balance figure showed a wider deficit than anticipated.

As the deficit widened from $-84.58 billion to $-86.72 billion last month this left the US Dollar trending lower against many of its rivals. Signs of deteriorating US trade conditions limited the appeal of the US Dollar, especially as global trade looks set to remain under pressure for some months yet to come.

Even so, if the Dallas Fed manufacturing index shows fresh evidence of manufacturing sector resilience this may offer USD exchange rates a boost.

Canadian Dollar (CAD) Muted as Budget Deficit Widens

The Canadian Dollar (CAD) saw a largely negative performance heading into the weekend thanks to a widened budget deficit.

Worries over the health of the Canadian economy picked up in response to news that the budget deficit had widened from C$-16.15 billion to C$-20.01 billion in January. This weaker showing suggests that the economy started the year on a softer footing, leaving the Canadian Dollar vulnerable to selling pressure in spite of the ongoing Suez Canal blockage.

As the oil market starts to lose some of its recent gains this could drag the Canadian Dollar lower across the board.

New Zealand Dollar (NZD) Benefits from Reduced Risk Aversion

The New Zealand Dollar (NZD) recovered some ground as investors adopted a less risk-averse attitude.

Demand for the risk-sensitive ‘Kiwi’ saw improvement ahead of the weekend, even in the absence of any domestic data developments. The relative weakness of the US Dollar helped to shore up NZD exchange rates in the short term, even though doubts over the health of the global economy persisted.

Without the support of positive New Zealand economic data the ‘Kiwi’ may have trouble extending its uptrend in the days ahead.

Data Releases

19:30 GBP Mortgage Approvals (Feb) 95,000
01:30 USD Dallas Fed Manufacturing Index (Mar) 18

Louisa Heath