Australian Dollar (AUD) Slips as US-China Tensions Rise
The Australian Dollar (AUD) initially edged higher yesterday after the latest monthly inflation gauge showed a larger-than-forecast acceleration, thereby boosting Reserve Bank of Australia (RBA) interest rate rise bets.
However, growing geopolitical concerns soured the market mood, which weighed heavily on the risk-sensitive ‘Aussie’ in the evening. The US shot down a suspected Chinese spy balloon over the weekend, raising fears of US-China tensions.
Today, the RBA decision is in the spotlight. A 25bps rate hike is already priced in, so markets will be more focused on the bank’s forward guidance. Will recent inflation data prompt a more hawkish outlook from the RBA?
New Zealand Dollar (NZD) Slides as Sentiment Sours
Unlike the ‘Aussie’, the New Zealand Dollar (NZD) had no positive economic data to lend it any support yesterday.
As a result, the prevailing downbeat market mood pushed the risk-sensitive ‘Kiwi’ consistently lower.
New Zealand data remains thin on the ground today. Therefore, NZD may trade in relation to its positive correlation with AUD and market sentiment.
Pound (GBP) Crawls Up from Multi-Month Lows
The Pound (GBP) manged to edge higher yesterday, recovering slightly from multi-month lows against some of its peers.
The upside may have come courtesy of some hawkish comments from Bank of England (BoE) policymaker Catherine Mann, who advocated more interest rate rises.
Looking ahead, a lack of high-impact UK economic data today could leave Sterling to trade without a clear directional bias.
Euro (EUR) Softens amid Retail Sales Slump
The Euro (EUR) was muted yesterday, ticking lower against its stronger peers despite strong factory orders growth from Germany. The downside came amid growing fears about an escalation in the Russia-Ukraine war.
A larger-than-forecast slump in Eurozone retail sales added to the common currency’s woes in the evening. Sales in the bloc declined by 2.7% in December, rather than the expected 2.5% drop.
Later on today an expected contraction in German industrial production could create headwinds for the Euro.
US Dollar (USD) Climbs amid Anxious Market Mood
The US Dollar (USD) strengthened yesterday as a risk-off market mood saw traders flock to the safe-haven ‘Greenback’. Fears of US-China tensions kept global traders on the defensive.
In addition, tailwinds from the hotter-than-expected US data releases on Friday continued into this week’s trade.
Risk appetite could continue to drive USD exchange rates through today’s session. In the early hours of tomorrow morning, an uptick in US economic confidence may boost the US Dollar.
Canadian Dollar (CAD) Enjoys USD Correlation
The Canadian Dollar (CAD) rose yesterday as the ‘Loonie’ enjoyed its increasingly positive correlation with the US Dollar.
Turning to today, will an expected widening of Canada’s trade deficit hurt the commodity-linked ‘Loonie’?
Data Releases
Feb 7th 10:01 GBP BRC Retail Sales Monitor YoY (Jan) 3.9%
Feb 7th 10:30 AUD Balance of Trade (Dec) AU$12.5bn
Feb 7th 13:30 AUD RBA Interest Rate Decision 3.35%
Feb 7th 17:00 EUR German Industrial Production MoM (Dec) -0.7%
Feb 7th 23:30 CAD Balance of Trade (Dec) CA$-0.5bn
Feb 8th 03:40 USD Fed Chair Powell Speech