Australian dollar (AUD) rebounds as risk appetite recovers
The Australian dollar (AUD) strengthened yesterday as market risk appetite recovered from the initial shock of Israel’s surprise strike on Iran on Friday.
Although the conflict between the two countries escalated over the weekend, investors were relieved that oil flows remained stable, with the Strait of Hormuz staying open.
All eyes remain locked on the Middle East for now, as the crisis could deepen. If we see further regional escalation or disruption to oil passing through the strait, sentiment could sour and AUD could plunge.
New Zealand dollar (NZD) rallies as market mood improves
The New Zealand dollar (NZD) also recovered during yesterday’s session, with the risk-sensitive ‘kiwi’ benefitting from the improvement in the market mood.
Risk appetite could continue driving NZD exchange rates today, with the New Zealand dollar in danger of declining if the Israel-Iran conflict escalates.
Pound (GBP) unclear amid lack of data
The pound (GBP) found itself rudderless yesterday as GBP investors held back ahead of some high-impact UK events later in the week.
As a result, Sterling traded in a wide range, falling against its stronger peers but rising against weaker ones.
Turning to today, the pound may be muted again amid an ongoing lack of data, with GBP investors potentially waiting for tomorrow’s publication of the UK’s latest consumer price index.
Euro (EUR) boosted by falling USD
The euro (EUR) enjoyed support yesterday thanks to the common currency’s strong negative correlation with a declining US dollar (USD).
However, the safe-haven euro lost ground against riskier currencies amid an uptick in market risk appetite.
Germany’s ZEW economic sentiment index is due out today. With sentiment in the Eurozone’s largest economy expected to have improved this month, the euro could climb.
US dollar (USD) slides as risk-on mood returns
The US dollar faced headwinds yesterday as the sharp turnaround in market risk appetite saw investors sell the safe-haven currency and seek other assets.
Weak US data added to USD’s headwinds in the evening, as the New York state manufacturing index plunged to its lowest level since March, reporting the fourth consecutive decline in business conditions.
Tonight, the latest US retail sales figures are due out. An expected 0.7% drop in sales growth could put the American dollar on the back foot.
Canadian dollar (CAD) unclear as oil prices retreat
The crude-linked Canadian dollar (CAD) was mixed yesterday. While oil prices fell back from recent highs, they remained up following Friday’s spike, holding above $70 per barrel.
Market-moving Canadian data is absent from the calendar today, likely leaving CAD to be driven by oil price dynamics. If crude prices start ticking higher again, the ‘loonie’ could also rise.
Data releases
19:00 EUR German ZEW Economic Sentiment Index (Jun)
22:30 USD Retail Sales (May)
23:15 USD Industrial Production (May)