Australian Dollar rate remains weak

05 December 2016 by News Desk   |   SHARE  

Australian Dollar was impacted as demand for risk-correlated currencies remained weak after a solid US Non-Farm Payroll report.

Australian Dollar rates remained flat as recent strength of the US Dollar has been largely due to expectations of a surge in global inflation in the next year or so due to US President-elect Donald Trump’s plans for re-flation, according to currency specialists TorFX

Higher US inflation and borrowing costs as well as a lower yield difference is likely to weigh on the risky Australian Dollar over an extended period, which could mean ‘Aussie’ trade has a long-term downside factor in it now.

New Zealand Dollar (NZD) – The Pound to New Zealand Dollar exchange rate surged on Monday. While Sterling had performed strongly towards the end of last week on soft-Brexit hopes, the ‘Kiwi’ Dollar was sold off on Monday, allowing even a relatively limp Pound to advance.

New Zealand Prime Minister John Key shocked the nation – as well as markets – by announcing during the Asian session that he would be resigning from the role. The fear of instability in New Zealand until a new leader is decided significantly hurt demand for the already risky NZD.

This could weigh on ‘Kiwi’ trade for much of this week, even if Tuesday’s Global Dairy Trade (GDT) auction sees another improvement in the price of New Zealand’s most lucrative commodity.

Australian Dollar rate remains weak

Pound Sterling (GBP) – The Pound continued to edge higher towards the end of last week as investors were optimistic after the week’s Brexit news, with UK and European officials playing up the possibility that the UK could pay for EU single market access after the Brexit process ends.

With hard Brexit fears fading, the Pound has been able to see a significant recovery in recent weeks, but UK data has had little to no real effect on the currency’s trade. Friday’s UK construction PMI beat expectations and improved in November.

Today the Supreme Court will hear a case on whether or not it’s legal for the UK government to activate Article 50 and begin the Brexit process without the ratification of Parliament. While the verdict is not due until the New Year, this could leave Sterling trade jittery.

US Dollar (USD) – The Pound to US Dollar exchange rate hit its highest level since late-October on Friday evening and ended the week on a high as traders bought into Sterling as hard Brexit fears faded.

Underlying demand for the US Dollar remained high thanks to a decent US Non-Farm Payroll report on Friday. 178k new jobs were added in the US in November, an improvement from October. The headline unemployment rate also fell from 4.9% to an impressive 4.6%, though this was partially due to a massive plummet in the nation’s participation rate.

GBP/USD slipped slightly on Monday morning as traders became jittery over this week’s UK Supreme Court hearing, which is expected to last four days.

Euro (EUR) – The Pound hit its best level against the Euro since the weeks following the Brexit vote on Monday morning, as traders reacted to news that Italian Prime Minister Matteo Renzi had been defeated during Sunday’s Italian constitutional referendum.

The Euro initially plunged when markets opened in a brief bout of panic. While the shared currency remains weaker, it has recovered from its worst levels as analysts expect Matteo’s loss had already been priced into the Euro over the last few weeks.

Renzi resigned from his role after the nation voted ‘No’ to his controversial constitutional amendments, leaving Italian President Sergio Mattarella to use what’s left of his administration to continue running the government. While some had worried this would trigger an early election and a way in for the far-right Five Star Movement party, many believe an early election is actually unlikely and the government may continue with a stand-in for Renzi. Finance Minister Pier Carlo Padoan is a favourite to succeed Renzi’s position.

Over in Austria, Green Party candidate Alexander Van der Bellen led a decisive victory against far-right candidate Norbert Hofer after a messy 2016 for the election process. This may have supported the Euro from its worst levels and decreased nationalism fears for the bloc slightly.

Canadian Dollar (CAD) – The Pound to Canadian Dollar exchange rate was able to advance towards the end of last week as demand for risky-currencies faded due to strong US stats and the potential for instability in the Eurozone. This was despite Canada’s most lucrative commodity, oil, continuing its price rally since last week’s OPEC oil output plan was detailed.

While prices for the commodity slipped slightly on Monday, they remained high after last week’s rally. Canadian data was also solid, with unemployment beating expectations considerably. This, however, was unable to hold Sterling at bay as the British currency benefitted from reduced hard Brexit fears.

Disclaimer: This update is provided by TorFX, a leading foreign exchange broker, its content is authorised for reuse by affiliates.

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