Australian Dollar (AUD) Unable to Capitalise on Business Confidence Improvement
The Australian Dollar (AUD) failed to benefit from a surprise uptick in the NAB business confidence index.
Although the index strengthened from 5 to 10 in January, pointing towards a greater level of domestic confidence, this was not enough to shore up AUD exchange rates at this stage. With market risk appetite remaining muted, investors saw limited incentive to buy into the ‘Aussie’ yesterday.
However, if the Westpac consumer confidence index also shows an improvement on the month, this could offer the Australian Dollar greater support.
Pound (GBP) Recovers Ground in Spite of Lower Consumer Spending
The Pound (GBP) managed to recover some of its lost ground even as news pointed towards a sharper dip in UK consumer spending.
The revelation that consumer spending had fallen to its lowest level since May in January, reflecting the impact of tightened social restrictions, failed to put the Pound under pressure. Instead the Pound benefitted from the relative weakness of many of the majors and a general shift away from more risk-sensitive assets.
As anticipation grows for the release of the fourth quarter UK GDP report on Friday, GBP exchange rates may come under greater pressure.
Euro (EUR) Shakes Off Narrowed German Trade Surplus
The Euro (EUR) held onto a positive footing against many of the majors in spite of the German trade surplus narrowing further than forecast in December.
While the headline trade surplus narrowed from €16.7 billion to €14.8 billion, the mood towards the single currency remained positive overnight. As forecasts had pointed towards a sharp monthly decline in export volumes, investors took encouragement from the fact that they had instead delivered a modest 0.1% uptick in December.
Confirmation that the German inflation rate returned to positive territory at the start of the year could help to shore up EUR exchange rates further.
US Dollar (USD) Out of Favour as US Treasury Yields Fall Back
The US Dollar (USD) fell out of favour in response to US Treasury yields retreating from year highs at the start of the week.
With the world’s largest economy still looking set to remain under pressure over the course of the first quarter the potential for USD exchange rate gains diminished.
On the other hand, with forecasts pointing towards an uptick in the latest US inflation data the mood towards the US Dollar could improve tonight.
Canadian Dollar (CAD) Fails to Benefit from 13-Month Oil Price High
The Canadian Dollar (CAD) was unable to push higher against its rivals even as the oil market experienced another solid day of gains.
Even though Brent crude prices hit 12-month highs during the European session, this was not enough to give the Canadian Dollar any particular boost. With some of the strength of the oil market starting to fade, the commodity-correlated currency was left on a generally weaker footing across the board.
If US crude oil inventories show another sharp drawdown on the week, though, this could offer the Canadian Dollar some encouragement.
New Zealand Dollar (NZD) Downside Limited by Inflation Expectations Uptick
The New Zealand Dollar (NZD) saw limited downside pressure in the wake of a solid uptick in the first quarter business inflation expectations survey.
With businesses expecting to see inflationary pressure pick up over the course of the coming year, confidence in the wider performance of the New Zealand economy also improved. This helped to insulate the ‘Kiwi’ against general market risk aversion, keeping NZD exchange rates from experiencing a fresh decline.
Even so, weakening Chinese inflation data could weigh on the New Zealand Dollar if it prompts another round of risk-off trading among investors.
Data Releases
10:30 AUD Westpac Consumer Confidence Index (Feb) 108
18:00 EUR Germany Inflation Rate (Jan F) 0.8%
00:30 USD Inflation Rate (Jan) 1.5%