Australian Dollar (AUD) Struggles to Capitalise on Lower Unemployment Rate
The Australian Dollar (AUD) saw some limited gains in the wake of a better-than-expected improvement in December’s unemployment rate, with the figure dropping from 6.8% to 6.6%.
Coupled with the general improvement in market risk appetite following Joe Biden’s inauguration, this gave the Australian Dollar a leg up against its rivals. However, some of that initial optimism started to fade overnight.
With December’s retail sales figure expected to contract sharply on the month, however, AUD exchange rates could face further selling pressure this morning.
Pound (GBP) Sees Limited Impact from Business Optimism Contraction
The Pound (GBP) managed to largely shrug off the impact of a deeper contraction in the CBI business optimism index.
Although the first quarter business optimism index plunged from 0 to -22, the Pound still made solid gains. Even with signs pointing towards an increased risk of a first quarter growth contraction, GBP exchange rates benefitted from the relative weakness of the US Dollar and an increased sense of market risk appetite.
The mood towards the Pound could sour tonight, however, if January’s UK services PMI falls deeper into negative territory as anticipated.
Euro (EUR) Pushes Higher as ECB Maintains Policy Guidance
The Euro (EUR) moved higher in the wake of the European Central Bank’s (ECB) policy announcement as policymakers maintained their stance.
Investors were unsurprised as the central bank opted to leave monetary unchanged, especially as policymakers signalled a willingness to remain on hold for some time. With no fresh monetary loosening appearing likely in the near future, the appeal of the single currency generally improved, recovering some of its recent losses.
Another solid month for the Eurozone manufacturing PMI may encourage EUR exchange rates to gain further traction this evening.
US Dollar (USD) Under Pressure Thanks to Market Optimism
The US Dollar (USD) remained on the back foot across the board last night as safe-haven demand remained limited in response to Joe Biden’s inauguration.
With market sentiment widely buoyed by the initial moves of the new Biden administration and the prospect of fresh fiscal stimulus, USD exchange rates were left lacking in the way of support. Although the latest week of initial jobless claims proved slightly lower than forecast, this was not enough to restore confidence in the performance of the labour market, adding to US Dollar bearishness.
Even so, a resilient performance from January’s manufacturing PMI may be enough to offer some support to the US Dollar heading into the weekend.
Canadian Dollar (CAD) Weakens as ADP Employment Change Misses Forecast
The Canadian Dollar (CAD) slipped lower against many of its rivals as December’s ADP employment change reading disappointed investors.
While forecasts had pointed towards a slowdown in job creation on the month, investors were caught off guard by a negative figure. CAD exchange rates were left biased to the downside as the labour market showed signs of weakness, increasing concerns over Canada’s economic recovery.
A dip in retail sales growth for November could add to the weakness of the Canadian Dollar tonight.
New Zealand Dollar (NZD) Holds ahead of Inflation Data
The New Zealand Dollar (NZD) held onto a positive footing thanks to improved market sentiment and optimism over the global outlook.
With markets encouraged by the first few hours of the Biden administration, demand for higher-yielding assets largely held up, keeping the ‘Kiwi’ on a positive footing. Anticipation ahead of the fourth quarter inflation report was not enough to dent NZD exchange rates, meanwhile.
Even so, if the headline inflation rate falls from 0.7% to 0% on the quarter as expected, this could see the New Zealand Dollar stumble this morning.
Data Releases
08:45 NZD Inflation Rate (Q4) 0%
11:30 AUD Retail Sales (Dec) -2.5%
20:00 EUR Eurozone Manufacturing PMI (Jan) 54.5
20:30 GBP Services PMI (Jan) 45
00:30 CAD Retail Sales (Nov) 0.1%
01:45 USD Manufacturing PMI (Jan) 56.5