Australian Dollar (AUD) Loses Ground Thanks to Global Covid-19 Fears
The Australian Dollar (AUD) came under pressure as fears of renewed lockdown measures around the world encouraged risk-off trading.
Growing anxiety over the Covid-19 crisis weighed on the Australian Dollar at the start of the week, in spite of domestic progress. While Australia’s case numbers look set to shrink, Europe, the US, and UK appear to be on the verge of a second wave of coronavirus infections. With the risk of fresh lockdown measures threatening to stifle the economic recovery seen over the summer, investors saw greater cause for caution.
Comments from Reserve Bank of Australia (RBA) deputy governor Guy Debelle could stoke further volatility if he shows signs of dovishness this morning.
Pound (GBP) Slides as Investors Await Fresh UK Lockdown Measures
The Pound (GBP) remained on the back foot at the start of the week as investors braced for the UK government to announce fresh Covid-19 restrictions.
With the odds of new coronavirus restrictions rising, the mood towards the Pound soured. While it remains to be seen how far the government will choose to go in its latest attempt to stem the spread of Covid-19, the UK’s economic recovery appears at risk.
Looking ahead, UK-EU Brexit trade talks resume this week which will likely weigh on GBP as controversy over the Internal Market Bill continues. However, as forecasts point towards a modest improvement in September’s CBI industrial trends orders index, GBP exchange rates could find limited support.
Euro (EUR) Softens as ECB’s Lagarde Shows Dovish Signals
The Euro (EUR) weakened during the yesterday’s European session thanks to the latest comments from European Central Bank (ECB) president Christine Lagarde.
As Lagarde’s tone proved a little more dovish in nature, the appeal of the single currency diminished. Noting that monetary stimulus can be ramped up in response to ongoing uncertainty she reminded markets of the ECB’s potential to act again before the end of the year. EUR exchange rates also weakened in response to Lagarde’s comment that the central bank is ‘attentive’ to the Euro’s appreciation.
An unchanged Eurozone consumer confidence reading later tonight would further limit the potential for Euro gains.
US Dollar (USD) Buoyed by Surge in Safe-Haven Demand
The US Dollar (USD) started the week on dominant form, spurred by an increasing sense of anxiety among investors.
A sharp uptick in safe-haven demand helped the US Dollar to make strong gains across the board overnight. These market jitters overshadowed August’s Chicago Fed national activity index, even though the reading fell short of forecast and dipped from 1.18 to 0.79. This offers evidence of the US economy is failing to hold onto its initial recovery in momentum, undermining hopes of a stronger third quarter.
If the Richmond Fed manufacturing index also disappoints, USD exchange rates could lose their footing as worries over the health of the US economic outlook rise.
Canadian Dollar (CAD) Sees Limited Support on Rising House Prices
The Canadian Dollar (CAD) found some support during Monday’s European session as August’s new housing price index bettered forecasts.
House prices increased further than anticipated on both the month and the year, pointing towards a recovery within the domestic housing market. Even so, the Canadian Dollar struggled to make any major gains on the back of the data thanks to the volatility of the oil market. With global demand for oil looking set to fall in the months ahead, the appeal of the commodity-correlated currency diminished.
As long as oil prices remain under pressure this will limit the potential for Canadian Dollar strength through this week.
New Zealand Dollar (NZD) Under Pressure Ahead of RBNZ Meeting
The New Zealand Dollar (NZD) saw little in the way of support as anticipation for the upcoming Reserve Bank of New Zealand (RBNZ) policy announcement grew.
With the RBNZ expected to deliver fresh signs of dovishness at its September meeting, even if no policy action is taken, NZD exchange rates remained biased to the downside. Deteriorating market sentiment also weighed on the New Zealand Dollar as fears over the resilience of the global economic outlook mounted.
Dovish expectations look set to keep the antipodean currency under pressure as markets await Wednesday’s RBNZ announcement.
Data Releases
10:30 AUD Reserve Bank of Australia’s Debelle Speech
20:00 GBP CBI Industrial Trends Orders (Sep) -41
00:00 EUR Eurozone Consumer Confidence Index (Sep) -14.7
00:00 USD Richmond Fed Manufacturing Index (Sep) 10