Australian Dollar (AUD) Boosted by Risk-On Mood
The Australian Dollar (AUD) surged at the end of the week as Victoria exited lockdown, fuelling recovery optimism, and the upbeat market trade boosted the risk-sensitive ‘Aussie’.
Market sentiment was lifted after China’s second-largest property developer Evergrande made an $83.5m payment before a crucial deadline that meant it avoided defaulting on debt payments.
Better-than-expected Australian PMI data also bolstered the ‘Aussie’, with the manufacturing reading at a four-month high and services returning to growth after three months of contraction.
Ahead of Australian inflation data on Wednesday, risk appetite will likely drive the Australian Dollar’s movement, with concerns lingering over Evergrande and more payment deadlines approaching.
Pound (GBP) Dented by UK Economic Concerns
The Pound (GBP) ended last week’s European session by slumping following worse-than-expected UK retail sales that contracted by -0.2% in September, instead of returning to 0.5% growth as forecast.
Sterling later pared some of its losses after the UK manufacturing PMI for October beat forecasts and the service sector jumped to its fastest expansion since July, although the data highlighted ongoing cost increases, supply chain problems, and staff shortages that threaten the UK’s economic recovery.
With UK data releases thin until the UK autumn budget in the middle of the week, the Pound will remain sensitive to Bank of England (BoE) interest rate hike expectations, rising Covid-19 cases in the country, and signs of the UK economic recovery losing momentum.
Euro (EUR) Edges Higher on Mixed Eurozone PMI Data
The Euro (EUR) made modest gains on Friday despite the Eurozone’s service PMI disappointing by slowing more than expected, and the manufacturing sector reading coming in above forecast at 58.5 in October, although it represented its slowest growth in factory activity in eight months.
However, the single currency benefitted from its negative correlation with the US Dollar, which weakened amid risk-on trade.
Looking ahead, Germany’s Ifo business climate index for October published this evening could weigh on EUR if the reading meets forecasts and confirms sentiment in the Eurozone’s powerhouse economy declined for a fourth consecutive month at a six-month low.
US Dollar (USD) Dips as Safe-Haven Demand Dented
The US Dollar (USD) trended lower across the board at the end of the session as risk-on trade eroded safe-haven demand for the currency.
Mixed US PMIs also failed to provide support to USD, with the service sector activity growing at its fastest pace in three months in October but lower-than-expected manufacturing expansion slowed for a third consecutive month.
With high-impact durable goods, GDP and PCE index data releases later this week, the US Dollar will likely be driven by shifting risk appetite and Fed taper expectations until then.
Canadian Dollar (CAD) Firm as Retail Sales Beat Forecasts
The Canadian Dollar (CAD) strengthened at the end of last week as Canadian retail sales figures for August rebounded and beat forecast at 2.1%, up from July’s -0.1% contraction.
CAD exchange rates also continued to be underpinned by high WTI crude prices, which held above $82 a barrel.
This week’s Bank of Canada (BoC) interest rate decision will be in focus for CAD investors, with speculation increasing that the central bank will begin to tighten its monetary policy.
New Zealand Dollar (NZD) Lacks Direction Despite Risk-On Mood
The New Zealand Dollar (NZD) was mixed on Friday amid a lack of NZ economic data and a risk-on mood, with NZD/USD making modest gains.
Aside from market mood and high commodity market prices, a confirmed drop in the finalised ANZ business confidence index released on Wednesday will likely be the main drivers of the ‘Kiwi’ in the coming days.
Data Releases
Oct 25th 18:00 EUR Ifo Business Climate (Oct) 97.9
Oct 25th 23:00 GBP BoE Tenreyro Speech