Pound Drops Sharply as Economic Optimism Encourages Profit Taking

Australian Dollar (AUD) Unable to Capitalise on RBA Optimism

The Australian Dollar (AUD) failed to benefit from signs of increased economic optimism within the Reserve Bank of Australia (RBA).

While the RBA noted that the economic recovery to date has proved stronger than forecast, suggesting greater hope for the coming months, this was not enough to boost AUD exchange rates. There was little potential for the ‘Aussie’ to make gains as the appeal of risk-sensitive assets proved limited in the wake of the bank holiday weekend.

However, as long as March’s finalised services PMI confirms another strong monthly performance for the sector, this could help to support AUD exchange rates.

Pound (GBP) Slides on Profit Taking

The Pound (GBP) fell sharply out of favour in the face of a fresh wave of investor profit taking, even as the UK prepares to ease lockdown conditions.

Although the UK remains on course to see non-essential shops reopen next week, this was not enough to keep the Pound from faltering overnight. As markets have already priced a high degree of economic confidence and optimism into GBP exchange rates, this left them vulnerable to selling pressure in the absence of any further data developments.

Even so, confirmation that the service sector returned to growth territory at the end of the first quarter could still help to limit the downside potential of GBP exchange rates this evening.

Euro (EUR) Softens Thanks to Eurozone Unemployment Rate Surprise

The Euro (EUR) saw some of its support weaken in response to a higher-than-expected Eurozone unemployment rate.

With the unemployment rate revised up from 8.1% to 8.3% in January, leaving the rate at an elevated level in February, worries over the wider economy picked up. As lockdown conditions across the currency union tighten in response to rising Covid-19 infections, the prospect of a weaker labour market put a fresh dampener on the single currency.

As the Eurozone services PMI looks set to remain trapped in contraction territory for another month, the Euro may struggle to find a rallying point in the near term.

US Dollar (USD) Bolstered by Non-Farm Payrolls and Economic Optimism Index

The US Dollar (USD) held onto a largely positive footing in the wake of Friday’s solid non-farm payrolls report.

Thanks to the latest solid increase in payrolls, which surpassed expectations in March, the US Dollar remained on an uptrend against many of the majors. With the IBD/TIPP economic optimism index also showing a stronger uptick than anticipated, USD exchange rates continued to push higher, especially as market risk appetite weakened.

However, with forecasts pointing towards a widening of the trade deficit in February, the US Dollar could come under pressure overnight.

Canadian Dollar (CAD) Struggles to Benefit from Oil Price Uptick

The Canadian Dollar (CAD) saw mixed trading yesterday in spite of Brent crude holding onto an uptrend throughout the day.

While confidence within the global oil market remained relatively elevated, this was not enough to give the Canadian Dollar any significant boost against its rivals. Even after the International Monetary Fund revised its global growth forecasts higher, CAD exchange rates were unable to push higher across the board.

With markets expecting to see a narrowing of the Canadian trade surplus tonight, the mood toward the Canadian Dollar could sour further.

New Zealand Dollar (NZD) Under Pressure in Absence of Fresh Data

The New Zealand Dollar (NZD) found itself on the back foot on Tuesday in the absence of any fresh New Zealand economic data releases.

Demand for the ‘Kiwi’ proved lacking even as investors showed some increased signs of confidence in the global outlook, following the IMF’s updated forecasts. Even so, as worries over the strength of the New Zealand economy’s future lingered this kept NZD exchange rates under pressure throughout the day.

However, as long as the general sense of market confidence picks up, this could help the New Zealand Dollar to limit its losses.

Data Releases

09:00 AUD Services PMI (Mar F) 56.2
18:00 EUR Eurozone Services PMI (Mar F) 48.8
18:30 GBP Services PMI (Mar F) 56.8
22:30 CAD Balance of Trade (Feb) C$1 billion
22:30 USD Balance of Trade (Feb) $-70.5 billion

Louisa Heath