Pound Pressured in Spite of UK Construction Surge

Australian Dollar (AUD) Shored Up by Market Risk Appetite

The Australian Dollar (AUD) benefitted from a wide turnaround in market risk appetite, even in the absence of any fresh domestic data releases.

While doubts over the outlook of the Australian economy remain, the ‘Aussie’ capitalised on a weakening US Dollar and improved market sentiment to push higher against many of the majors. With the Federal Reserve looking set to leave monetary policy on hold for the foreseeable future, Australian Dollar strengthened amid risk-on trade.

As long as February’s finalised building permits figure confirms a sharp uptick in construction sector activity AUD exchange rates are likely to remain on a stronger footing.

Pound (GBP) Struggles on Vaccine Concerns

The Pound (GBP) continued to struggle during yesterday’s European session as concerns over the UK vaccination rollout being disrupted by doubts over the AstraZeneca vaccine, which the UK is heavily dependent on, weighed on Sterling.

GBP failed to recover lost ground even as March’s UK construction PMI surged higher on the month, jumping from 53.3 to 61.7 and hitting a six-year high.

Even as the UK economy prepares for a fresh easing in lockdown conditions, the Pound may find limited upside potential thanks to continued profit taking as GBP’s vaccine optimism gains appear to be fading.

Euro (EUR) Dented as Eurozone Construction Underperforms

The Euro (EUR) generally softened as March’s set of Eurozone construction PMIs proved weaker than anticipated.

Support for the single currency weakened in response to the underwhelming set of construction sector data, which points towards another month of largely stagnant growth across the currency union. With German factory orders also failing to impress, seeing a downward revision for January, EUR exchange rates were left biased to the downside.

However, demand for the Euro could recover this evening as long as the German trade deficit widens as forecast for February.

US Dollar (USD) Under Pressure as Fed Holds Policy

The US Dollar (USD) faltered in the wake of the Federal Reserve’s latest set of meeting minutes as the general sense of investor sentiment improved.

With the Fed committed to an approach of letting inflation run above its 2% target, in order to counterbalance a longer period of weaker inflation, support for the US Dollar weakened. As the central bank looks set to keep interest rates on hold for the foreseeable future, markets saw little reason to favour the safe-haven USD over its higher-yielding rivals.

As February’s wholesale inventories data is expected to show a softening on the month, this could drag the US Dollar lower across the board.

Canadian Dollar (CAD) Softens on Weaker Oil Prices

The Canadian Dollar (CAD) slipped thanks to a softening of oil prices overnight, even as market risk appetite strengthened.

Support for the commodity-correlated currency diminished in the face of the latest decline in global oil prices, with investors still concerned by the prospect of rising oil supply. Even though other risk-sensitive assets strengthened in response to the Fed’s dovish message, this was not enough to shore up the Canadian Dollar.

However, with the March unemployment rate expected to show a drop on the month, the mood towards the Canadian Dollar could improve heading into the weekend.

New Zealand Dollar (NZD) Rallies in Spite of Business Confidence Decline

The New Zealand Dollar (NZD) found renewed support in spite of a fresh decline in April’s ANZ business confidence index.

Although the index continued to deteriorate, falling from -4.1 to -8.4 on the month, this was not enough to drag the ‘Kiwi’ down against its rivals. In the wake of the Federal Reserve meeting minutes, market risk appetite improved, giving NZD exchange rates a leg up across the board.

However, in the absence of any fresh supportive data, the New Zealand Dollar may struggle to maintain any particular degree of strength in the near term.

Data Releases

11:30 AUD Building Permits (Feb F) 57
16:00 EUR Germany Balance of Trade (Feb) €21.5 billion
21:00 GBP Bank of England Quarterly Bulletin
22:30 CAD Unemployment Rate (Mar) 8%
00:00 USD Wholesale Inventories (Feb) 0.5%

Louisa Heath