Australian Dollar (AUD) Lifted by Signs of RBA Optimism
The Australian Dollar (AUD) recovered some of its lost ground heading into the weekend thanks to the Reserve Bank of Australia’s (RBA) statement on monetary policy.
Although policymakers indicated that inflation will remain low until mid-2023, even in their most optimistic forecasts, this was not enough to drag the ‘Aussie’ lower on Friday. Instead investors took encouragement from the RBA’s more optimistic comments on the wider economic outlook, suggesting confidence that growth will continue to pick up in the months ahead.
In the absence of any fresh Australian data releases, AUD exchange rates may struggle to hold onto a positive footing over the course of the day.
Pound (GBP) Softens Following BoE Surge
The Pound (GBP) reversed some of Thursday’s gains at the end of the week as the Bank of England (BoE) driven rally faded.
The UK’s vaccination programme continues to provide support to GBP exchange rates as the AstraZeneca proved effective against a UK coronavirus variant, but easing of lockdown uncertainty is limiting upward Sterling momentum.
Any renewed anxiety over Covid-19 and the odds of an extended UK lockdown could see GBP exchange rates shedding further ground through this week.
Euro (EUR) Supported in Spite of Factory Orders Decline
The Euro (EUR) found support even as December’s German factory orders figure saw a sharper decline than anticipated.
Orders plunged -1.9% on the month in December but failed to cast any fresh anxiety over the outlook of the Eurozone’s powerhouse economy. A narrowed French trade deficit offered EUR exchange rates some encouragement, especially in the face of a softer US Dollar.
Any significant slowdown in the latest German industrial production data still has the potential to weigh heavily on the single currency, though.
US Dollar (USD) Weakened by Disappointing Payrolls Figures
The US Dollar (USD) slumped during Friday’s European session as January’s non-farm payrolls report failed to encourage markets.
As the headline reading fell short of forecast and December’s payrolls figure saw a significant downward revision from -140,000 to -227,000, this stoked fresh anxiety over the health of the labour market. Even with another major injection of fiscal stimulus on its way, the US Dollar weakened in the face of this fresh sign of rising unemployment within the world’s largest economy.
However, a solid consumer inflation expectations reading could help the US Dollar to recover some of its lost ground this evening.
Canadian Dollar (CAD) Slumps Thanks to Unemployment Rate Surge
The Canadian Dollar (CAD) weakened sharply in response to a surprise surge in January’s unemployment rate.
While forecasts had pointed towards a slight uptick in unemployment, investors were caught off guard as the rate jumped from 8.8% to 9.4%, suggesting a significant deterioration in the health of the labour market. This overshadowed a greater narrowing of December’s trade deficit, leaving the Canadian Dollar trending lower across the board.
Unless the oil market stages a major upswing today, the Canadian Dollar looks set to remain biased to the downside.
New Zealand Dollar (NZD) Benefits from Risk Appetite
The New Zealand Dollar (NZD) rallied ahead of the weekend thanks to a general improvement in market risk appetite.
Lacking the support of any fresh New Zealand data releases, the ‘Kiwi’ found strength in the face of a weaker US Dollar and a tempering of market anxiety. While doubts over the economic outlook remain this was not enough to put any fresh pressure on NZD exchange rates.
As long as market sentiment remains bullish this could keep the New Zealand Dollar on a positive footing in the near term.
Data Releases
18:00 EUR Germany Industrial Production (Dec) 0.3%
03:00 USD Consumer Inflation Expectations (Jan) 3%