Australian Dollar (AUD) Bolstered by Risk-On Trade
The Australian Dollar (AUD) was steady through Tuesday’s session as an improvement in market mood and firmer commodity prices helped support the risk-sensitive ‘Aussie’.
Meanwhile, the NAB business confidence index for January also bolstered AUD exchange rates by unexpectedly rebounding sharply from December’s 17-month low. Business morale was boosted by optimism over recovery from the wave of Covid-19 that swept the country.
Consumer confidence will be the focus for AUD investors this morning, with forecasts pointing to another decline. However, after business confidence surprised, another unexpected rise in the index could lift the Australian Dollar.
Pound (GBP) Steady as Johnson Reshuffles Cabinet
The Pound (GBP) held firm yesterday on expectations for hawkish future Bank of England (BoE) monetary policy tightening, while UK Prime Minister Boris Johnson reshuffled his cabinet amid ongoing doubts over his leadership.
Sterling also received support from British Retail Consortium (BRC) data, which indicated UK retail sales unexpectedly jumped in January year-on-year.
Looking ahead, UK political developments look likely to be the main driver in GBP as pressure on Boris Johnson continues and instability grows in Northern Ireland’s Assembly amid the DUP’s protest at the Northern Ireland Protocol.
Euro (EUR) Slips on ECB Lagarde Comments
The Euro (EUR) came under pressure during Tuesday’s European session after European Central Bank (ECB) President Christine Lagarde cooled expectations for rate hikes, widening the policy gap with the Federal Reserve and BoE.
Lagarde said that the ECB would not raise rates until it has ended its asset purchases, which it recently announced would increase in the second quarter from €20 billion to €40 billion each month, meaning a rate hike in the autumn is unlikely.
Looking ahead, German trade data released this afternoon could weigh on EUR sentiment, with the Eurozone’s powerhouse economy’s trade surplus forecast to narrow and exports to fall.
US Dollar (USD) Bolstered by Rising Treasury Yields
The US Dollar (USD) firmed on Tuesday as rising US Treasury yields underpinned support for USD exchange rates.
However, US trade data tempered USD gains, after the final trade figures of 2021 showed the deficit rose by 27%, an annual record as imports grew faster than exports.
The US Dollar is likely to remain sensitive to market risk appetite today, as investors hold aggressive bets ahead of US inflation data for January released tomorrow evening.
Canadian Dollar (CAD) Tumbles as Oil Prices Drop
The oil-sensitive Canadian Dollar (CAD) fell on Tuesday as WTI crude prices fell sharply to $89 a barrel.
Canada’s December trade balance data also dented CAD exchange rates after unexpectedly showing a trade deficit of CA$-0.14 billion instead of the CA$2.5 billion forecast.
Looking ahead, with US-Iran talks appearing to progress positively, the prospect of greater supply from Iran may continue driving oil prices down and in turn weigh on the Canadian Dollar.
New Zealand Dollar (NZD) Bolstered by Improved Market Sentiment
The New Zealand Dollar (NZD) benefitted from an improved market mood yesterday, as well as stronger commodity market prices.
In the absence of notable New Zealand data releases today, the ‘Kiwi’ will remain sensitive to shifts in market risk appetite.
Data Releases
Feb 9th 09:30 AUD Westpac Consumer Confidence Index (Feb) 102
Feb 9th 17:00 EUR German Balance of Trade (Dec) €10.8bn
Feb 9th 23:10 GBP BoE Pill Speech