Australian Dollar (AUD) Bolstered by RBA Governor’s Comments
The Australian Dollar (AUD) benefitted from a more optimistic tone in comments made by Reserve Bank of Australia (RBA) Governor Philip Lowe.
As Lowe indicated that Covid-19 lockdowns have not had as severe a detrimental impact as previously expected, this encouraged hopes that the Australian economy could perform better in the months ahead. The fading impact of Tuesday’s RBA policy announcement also left room for the ‘Aussie’ to recover some of its lost ground, pushing higher against many of its rivals.
However, with forecasts pointing narrowed trade surplus, the mood towards the Australian Dollar could sour once again today.
Pound (GBP) Weak as UK Services PMI Confirms Contraction
The Pound (GBP) failed to find much support even in the wake of a surprise upward revision to January’s finalised UK services PMI.
While the final reading came in at 39.5, rather than the 38.8 initially forecast, this still demonstrates a major loss of momentum for the service sector. As the sector remains the primary driving force of the UK economy, this weakness kept alive fears that the UK economy could see another quarter of contraction at the start of 2021.
If the Bank of England (BoE) shows any signs of dovishness in its February policy announcement, this could weigh heavily on demand for the Pound.
Euro (EUR) Struggles to Capitalise on Positive Eurozone Inflation Rate
The Euro (EUR) saw limited gains overnight even as the Eurozone inflation rate returned to a positive state in January, picking up sharply from -0.3% to 0.9% on the year.
This encouraged hopes that the European Central Bank (ECB) might hold off on further monetary loosening in the months ahead. However, with inflation still falling significantly short of the ECB’s 2% target, this ultimately limited the positive impact of the data, especially as markets had already largely priced in a positive result.
A positive month of growth for Eurozone retail sales in December may help to lift EUR exchange rates further, though.
US Dollar (USD) Support Limited in Spite of Employment Change Uptick
The US Dollar (USD) softened even as the ADP employment change figure bettered forecasts and the ISM non-manufacturing index rose to a two-year high.
While the labour market showed signs of recovering some of its lost strength in January, this failed to encourage much demand for the US Dollar. The extent of the improvement appeared largely in line with seasonal trends, suggesting that employment conditions across the US remain lacklustre in the first quarter.
Even so, if the latest initial jobless claims figure also shows signs of solid improvement, USD exchange rates could receive a fresh boost tonight.
Canadian Dollar (CAD) Muted Ahead of Labour Market Data
The Canadian Dollar (CAD) found muted support during Wednesday’s European session as confidence within the oil market started to lull.
While oil prices remained positive on the prospect of tighter global supply in the coming year, the Canadian Dollar failed to make gains. Growing anticipation ahead of Friday’s raft of domestic data also put a dampener on CAD exchange rates, with investors bracing against the potential for disappointment.
As long as markets see reason to bet on an uptick in the unemployment rate, this could keep the Canadian Dollar biased to the downside.
New Zealand Dollar (NZD) Rallies Thanks to Unemployment Rate Improvement
The New Zealand Dollar (NZD) strengthened thanks to an unexpected improvement in the fourth quarter unemployment rate.
Although forecasts had pointed towards unemployment rising to 5.6% in the final three months of 2020, the rate instead dipped to 4.9%. While the labour market looks set to remain under a degree of pressure in the near future, the ‘Kiwi’ still pushed higher on relief that employment conditions saw some stabilisation in the fourth quarter.
An uptick in December’s building permits figure could give NZD exchange rates further ground to push higher this morning.
Data Releases
08:45 NZD Building Permits (Dec) 1.5%
11:30 AUD Balance of Trade (Dec) A$4.4 billion
21:00 EUR Retail Sales (Dec) 1.6%
23:00 GBP Bank of England Rate Decision 0.1%
00:30 USD Initial Jobless Claims (30/Jan) 830,000