Australian Dollar (AUD) Retreats in Risk-Off Trade
The Australian Dollar (AUD) slumped at the end of last week as a cautious market mood weighed heavily on the risk-sensitive ‘Aussie’.
AUD exchange rates also continued to come under pressure from the Reserve Bank of Australia’s (RBA) monetary policy stance that interest rates will remain unchanged for some time, in contrast to many other major central banks.
The release this morning of the Ai Group services PMI for January and December’s retail sales data may extend AUD weakness, with business activity expected to have contracted further and retail sales forecast to have plunged -4.4%.
Pound (GBP) Tumbles on Cost-of-Living Crisis Fears
The Pound (GBP) continued coming under significant pressure on Friday over fears of a cost-of-living crisis in the UK hitting economic growth, against a backdrop of soaring energy prices, tax increases, rising interest rates, and higher prices that will squeeze household incomes.
Uncertainty over the future of UK Prime Minister Boris Johnson grows after four of his senior aides resigned on Friday, one citing his ‘scurrilous’ comments used in parliament earlier in the week.
Looking ahead, rising political instability in Northern Ireland may dent GBP in the coming days. The majority DUP party ordering an end to checks on goods at the sea border, and the First Minister’s resignation in protest against the impasse in talks over the Northern Ireland protocol look set to heighten UK-EU tensions.
Euro (EUR) Buoyed by ECB Opening Door to Rate Hikes
The Euro (EUR) continued to soar at the end of last week’s session, being carried higher by the European Central Bank (ECB) appearing to alter its policy stance that opens the door for a rate hike in 2022.
EUR exchange rates also received support from better-than-expected German factory orders for December that rose to 2.8%, although Eurozone retail sales plunging -3% tempered the Euro’s gains.
The single currency may receive more support this afternoon from German industrial production figures for December returning to positive territory of 0.4%.
US Dollar (USD) Boosted by Bumper US Payrolls
The US Dollar (USD) rallied on Friday following upbeat US non farm payrolls data that unexpectedly showed the US economy added 467,000 jobs in January.
Following the impressive rise in job creation and signs of inflationary pressure in wage growth, bets increased for the Federal Reserve to raise interest rates more aggressively by 0.5% instead of 0.25% in March, which drove US Treasury yields higher and in turn the US Dollar.
Looking ahead, market risk appetite and expectations for how aggressively the Federal Reserve will hike rates in March will likely be the key drivers of USD today.
Canadian Dollar (CAD) Mixed as Oil Prices Surge to Seven-Year High
The Canadian Dollar (CAD) was mixed on Friday, falling against a strong US Dollar and Euro but receiving strong support on WTI crude prices hitting seven-year highs of $92 a barrel.
At the same time, the Ivey PMI for January provided modest support by indicating a return to expansion of business activity after a contraction in December.
With oil prices looking to continue soaring amid global geopolitical tensions and storms in the US disrupting supply, the Canadian Dollar will likely continue finding solid support.
New Zealand Dollar (NZD) Tumbles amid Market Jitters
The New Zealand Dollar (NZD) plunged on Friday as a cautious market mood and bets of aggressive monetary policy tightening from the Fed spooked markets and heavily dented the risk-sensitive ‘Kiwi’.
Market jitters continuing during today’s session will likely weigh on NZD sentiment, as investors adjust their positions on major central banks such as the Federal Reserve and ECB becoming more hawkish.
Data Releases
Feb 7th 07:30 AUD Ai Group Services Index (Jan) 46
Feb 7th 10:30 AUD Retail Sales (Dec) -4.4%
Feb 7th 17:00 EUR German Industrial Production (Dec) 0.6%