Pound Downside Limited as UK Retail Sector Recovery Grows

Australian Dollar (AUD) Stumbles ahead of First Quarter Inflation Rate

The Australian Dollar (AUD) faltered yesterday as the general sense of market risk appetite faded once again.

Another sharp uptick in Chinese industrial profits was not enough to keep the Australian Dollar from shedding ground, in spite of its function as a market proxy for sentiment towards the Chinese economy. With demand for the US Dollar also picking up, there appeared little incentive to favour the ‘Aussie’.

However, with forecasts pointing towards an uptick in the first quarter inflation rate, AUD exchange rates could find a boost this morning.

Pound (GBP) Downside Limited by Signs of Retail Sector Recovery

The Pound (GBP) found some limited traction on the back of April’s improved CBI distributive trades index.

While forecasts had pointed towards a strong uptick, investors were encouraged to find that the index had leapt from -45 to 20. With the retail sector showing increased signs of momentum at the start of the second quarter, demand for the Pound improved, with investors betting on the prospect of a stronger quarterly growth rate to come.

However, in the absence of any fresh UK data releases today, GBP exchange rates may struggle to hold onto any particularly positive footing.

Euro (EUR) Softens Even as Italian Confidence Shows Improvement

The Euro (EUR) remained on a relatively soft footing against many of the majors as worries over the Eurozone economic outlook lingered.

However, the downside potential of EUR exchange rates was limited overnight thanks to the release of April’s Italian consumer and business confidence indexes. As both showed a stronger-than-expected uptick on the month, this encouraged bets that the second quarter could see an improvement in sentiment across the currency union.

Demand for the single currency could pick up sharply this evening as long as the German GfK consumer confidence index shows an increase on the month.

US Dollar (USD) Finds Support on Surge in Consumer Confidence Index

The US Dollar (USD) strengthened against its risk-sensitive rivals amid souring market sentiment and on the back of a major surge in the CB consumer confidence index.

As the index jumped from 109 to 121.7 in April, this demonstrated that sentiment had risen to its highest level since the start of the pandemic.

However, as the Richmond Fed manufacturing index failed to pick up as forecast, this still limited the upside potential of USD exchange rates.

Demand for the US Dollar could weaken as anticipation for the Federal Reserve’s April policy announcement grows.

Canadian Dollar (CAD) Under Pressure Ahead of Retail Sales Data

The Canadian Dollar (CAD) found itself under pressure against many of the majors even as oil prices saw some improvement.

While the global oil market recovered somewhat, the commodity-correlated Canadian Dollar still struggled. With market risk appetite muted in the face of the latest signs of strength within the US economy, the potential for CAD exchange rate gains faded.

Even so, with February’s retail sales data expected to show a sharp rebound in consumer demand, the Canadian Dollar could find support tonight.

New Zealand Dollar (NZD) Muted in Absence of Risk Appetite

The New Zealand Dollar (NZD) generally weakened without the support of fresh domestic data or market risk appetite.

As market sentiment showed signs of souring, the ‘Kiwi’ was left to trend lower across the board, reversing much of the previous day’s gains. Lingering doubts over the global economic outlook and the ongoing impact of Covid-19 put renewed pressure on NZD exchange rates.

However, anticipation ahead of the release of the March trade balance could help to keep a floor under the New Zealand Dollar.

Data Releases

11:30 AUD Inflation Rate (Q1) 1.4%
16:00 EUR GfK Consumer Confidence Index (May) -3.5
22:30 CAD Retail Sales (Feb) 4%
04:00 USD Federal Reserve Interest Rate Decision 0.25%

Louisa Heath