Australian Dollar (AUD) Bolstered by Improved Mood as Border Reopen
Amid a more upbeat market mood, the Australian Dollar (AUD) recovered some of Friday’s losses at the start of this week as the government announced the country’s borders will reopen to tourists and visa holders for the first time in two years.
AUD exchange rates also received support yesterday from the Ai Group services PMI for January unexpectedly jumping to its highest level since June to show growing business activity in the sector.
However, business confidence data for January may weigh on the ‘Aussie’ this morning, as sentiment is expected to have declined to have declined again in January.
Pound (GBP) Dented by UK Outlook
The Pound (GBP) struggled during yesterday’s European session as concerns over a cost-of-living crisis in the UK weakening economic growth weighed on Sterling sentiment.
Comments from Bank of England Chief Economist Huw Pill fuelled the fears over an uncertain economic outlook by saying not to ‘anticipate that interest rate rises are going to be aggressive in the medium term’.
Ahead of high-impact GDP data released at the end of the week, the Pound will likely remain sensitive to developments surrounding the future of UK Prime Minister Boris Johnson amid speculation his own party could trigger a leadership contest.
Euro (EUR) Rally Halted
The Euro (EUR) came under significant pressure on Monday due to an improvement in market mood and investor profit taking in the single currency following last week’s rally.
However, EUR held the majority of its gains against the Pound and US Dollar after European Central Bank (ECB) board member Klaas Knot supported the bank’s recent more hawkish stance. He said the asset purchasing programme should end as soon as possible and he expects the first rate hike in the fourth quarter of 2022.
Looking ahead, investors pricing in tighter monetary policy and a rate hike from the ECB in 2022 will likely be the main driver of the Euro today.
US Dollar (USD) Lacks Direction amid Upbeat Mood
After rallying on Friday, the US Dollar (USD) struggled to build on its gains as a risk-on market mood weighed on demand for the safe-haven currency.
However, the US Dollar limited its losses on increasing expectations of a larger rate hike than previously thought from the Federal Reserve at its March policy meeting.
The US Dollar will remain sensitive to shifting risk appetite again today, while US trade data released tonight may drive additional movement. At the same time investors may hold bets ahead of Thursday US inflation data for January.
Canadian Dollar (CAD) Bolstered by High WTI Crude Prices
The oil-sensitive Canadian Dollar (CAD) strengthened at the start of this week’s session as WTI crude prices remained above $91 a barrel despite slipping slightly.
While strong global demand and tight supply kept prices high, signs of progress in talks between the US and Iran caused oil prices to soften slightly on the prospect of Iran rapidly increasing supply.
Canadian trade data for December released tonight may modestly weaken CAD exchange rates as forecasts point to the country’s trade surplus retreating from a 14-year high.
New Zealand Dollar (NZD) Strengthens amid Risk-On Trade
The New Zealand Dollar (NZD) recovered some of its recent losses on Monday as increased risk appetite provided support for the risk-sensitive ‘Kiwi’.
In the absence of notable New Zealand data releases, NZD will likely remain sensitive to shifting market mood, while investors price in a possible rate hike from the Reserve Bank of New Zealand (RBNZ) at the end of February.
Data Releases
Feb 8th 10:30 AUD NAB Business Confidence (Jan) -14
Feb 8th 23:30 CAD Balance of Trade (Dec) C$2.5B
Feb 8th 23:30 USD Balance of Trade (Dec) $-83B