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Australian Dollar suffers weak demand

01 December 2016 by News Desk

Australian Dollar was impacted by weak risk factors compared to its commodity bloc peers.

Australian DollarAustralian Dollar demand has been damaged this week by continued weakness in iron ore prices, Australia’s most lucrative commodity, according to currency specialists TorFX

After prices of the commodity peaked at US$80 per tonne earlier in the week, iron ore was sold from its highs in profit taking – as was the Australian Dollar.

GBP/AUD has been able to benefit from this, and the Australian Dollar has failed to capitalise on the market’s oil bullishness despite OPEC reaching a plan to cut oil output that left other commodity-correlated currencies cheery.

New Zealand Dollar (NZD) -The Pound to New Zealand Dollar exchange rate briefly plummeted on Wednesday morning as traders reacted to a seemingly neutral tone towards interest rates from the Reserve Bank of New Zealand (RBNZ).

This indicated to traders that the bank had reached the end of its easing bias, which bolstered demand for the ‘Kiwi’.

However, Sterling surged later in the day and as a result was able to take GBP/NZD much closer to the week’s opening levels.

Australian Dollar suffers weak demand

Pound Sterling (GBP) – The Pound fluctuated widely during Wednesday trade due to various underlying factors as short positions against the currency continued to be cut and its rivals performed weakly.

GBP gains occurred in spite of a relatively mixed Financial Stability Report (FSR) from the Bank of England (BoE) in which bank officials stated that Britain’s economic outlook was still unclear and challenging due to the Brexit process.

One factor benefitting Sterling was OPEC’s decision to cut oil production by 1.2m barrels a day in order to boost oil prices. This caused demand for the commodity to soar which also bolstered inflation hopes on a global scale. Higher inflation around the globe could make the case for higher UK interest rates from the BoE in the future.

Sterling trade cooled slightly on Thursday as OPEC bullishness faded.

US Dollar (USD) – The Pound to US Dollar exchange rate was able to advance on Wednesday despite the US Dollar performing strongly against other major rivals. The day’s OPEC news as well as lightening Brexit hopes bolstered Sterling demand throughout the day.

OPEC’s oil cut plans were also good news for the US Dollar however as higher inflationary hopes could mean even quicker tightening from the Federal Reserve over the next year or so if OPEC’s plans have a real effect on oil prices. December Fed rate hike bets are already at 99% which means GBP/USD may not advance much further than it has.

Wednesday’s US data also impressed. ADP’s November employment change results beat expectations with a score of 216k and personal income for October also improved beyond expectations.

Euro (EUR) – The Pound to Euro exchange rate advanced past the week’s opening levels on Wednesday and settled above key psychological resistance of 1.18 for the first time in 11 weeks.

The Euro remained weak throughout Wednesday trade, which allowed Sterling to advance. This was largely due to concerns ahead of this weekend’s Italian constitutional referendum and Austrian re-election, as well as next week’s European Central Bank (ECB) meeting, which is speculated to be when the bank will finally extend its aggressive stimulus measures.

Although the day’s Eurozone stats meet expectations, they failed to lend the Euro much support. German unemployment came in at 6% and Eurozone inflation projections improved to 0.6%.

Thursday’s data was mixed, with Italian and French manufacturing beating expectations in November but German manufacturing disappointing. The Eurozone’s overall manufacturing stat met preliminary results of 53.7.

Canadian Dollar (CAD) – The Pound to Canadian Dollar exchange rate fluctuated on Wednesday as both currencies benefitted significantly from OPEC’s plans to cut oil production in order to stimulate price growth for the commodity.

Oil prices began to increase more rapidly after OPEC confirmed that each of its member states had agreed to cut production, making the total cut equal to 1.2m barrels per day.

However, some analysts remained sceptical over the plan’s potential. Some stated that even if members cut oil production, non-members like Russia may up production to fill the gap. As a result, OPEC bullishness faded slightly on Thursday.

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

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