Australian Dollar (AUD) Trends Lower amid Risk-Off Trade
The Australian Dollar (AUD) slumped yesterday as a risk-off tone swept markets ahead of the Federal Reserve rate decision and policy meeting.
AUD exchange rates weakened further as December’s NAB business confidence index proved weaker than forecast, falling from 13 to 4. These losses came despite the fourth quarter inflation rate bettering forecasts, picking up from 0.7% to 0.9% on the year.
Another sharp quarterly decline in the export price index may add to the bearish mood of the Australian Dollar this morning.
Pound (GBP) Capitalises on Weaker Rivals
The Pound (GBP) benefitted from the relative weakness of a number of its rivals overnight, even in the face of no fresh UK data releases.
With market risk appetite limited, the Pound was able to trend higher against a number of the majors, even though concerns over the UK’s economic outlook linger.
As UK deaths from Covid-19 topped 100,000, this raised the prospect of the lockdown remaining in place for longer, something which could drag on GBP exchange rates in the days ahead.
Euro (EUR) Weighed Down by German Consumer Confidence Dip
The Euro (EUR) fell further out of favour with investors as the latest German GfK consumer confidence index showed a sharper decline than anticipated.
While forecasts had pointed towards a slight drop in the index, investors were caught out as it plunged from -7.5 to -15.6. This indicates that sentiment within the Eurozone’s powerhouse economy has continued to sour since the start of the year, reflecting the impact of ongoing social restrictions and the Covid-19 pandemic.
However, if the German inflation rate turns positive in January as expected, this could offer the single currency a solid rallying point.
US Dollar (USD) Strengthens in Spite of Durable Goods Orders Slowdown
The US Dollar (USD) managed to shake off a disappointing durable goods order last night, benefitting from sustained safe-haven demand.
Although durable goods orders only showed growth of 0.2% on the month in December, as opposed to 0.9%, this failed to drag USD exchange rates lower. Even with the world’s largest economy showing fresh signs of slowdown, the wider sense of market risk aversion kept the US Dollar on a stronger footing.
Even so, a disappointing fourth quarter GDP reading could still put some pressure on the US Dollar tonight.
Canadian Dollar (CAD) Downside Limited after US Oil Inventory Drawdown
The Canadian Dollar (CAD) found some limited support after US crude oil inventories showed a major drawdown on the week.
This decline in stockpiles helped to shore up oil prices during Wednesday’s European session, with the drop likely to help support the oil market in the short term. While doubts over the global oil outlook remain limited this improvement helped to drive the commodity-correlated Canadian Dollar higher against some of its similarly risk-sensitive rivals.
Another solid average weekly earnings report may encourage CAD exchange rates to push higher across the board.
New Zealand Dollar (NZD) Under Pressure Ahead of Trade Data
The New Zealand Dollar (NZD) lost ground as market sentiment turned distinctly bearish yesterday, fuelling a sell-off of risk-sensitive assets.
With worries over the global economy outlook lingering, particularly in the face of a large shortfall in the supply of Covid-19 vaccine doses to the EU, the ‘Kiwi’ found itself on the back foot. In the face of increased safe-haven demand there was little room for the New Zealand Dollar to gain traction at this stage.
A narrowing of the trade surplus in December may expose NZD exchange rates to additional selling pressure today.
Data Releases
08:45 NZD Balance of Trade (Dec) NZ$150 million
11:30 AUD Export Prices (Q4) -1.3%
00:00 EUR Germany Inflation Rate (Jan) 0.7%
00:30 CAD Average Weekly Earnings (Nov)
00:30 USD Gross Domestic Product (Q4) 4%