Australian Dollar Slides as Labour Market Fails to Tighten

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  • Australian Dollar Trends Lower in spite of Improved Unemployment Rate – Falling participation rate points towards lower number of economically active Australians
  • Easing Brexit Optimism Limits Pound Support – Improved CBI retail sales data may offer boost today
  • Euro Slides as European Central Bank Adopts Cautious Outlook – Interest rates set to remain on hold though summer
  • Lower Credit Card Spending Weighs on New Zealand Dollar – Confidence in economic outlook still muted

Falling Unemployment Rate Fails to Boost Australian Dollar

December’s labour market data failed to offer encouragement to the Australian Dollar, even though the headline unemployment rate unexpectedly fell from 5.1% to 5.0%. Rather than reflecting a tightening in the labour market, though, this fall was instead driven by a decline in the participation rate. With fewer Australians now economically active confidence in the domestic outlook naturally diminished, leaving AUD exchange rates on the back foot.

In the absence of any fresh domestic data today the Australian Dollar may struggle to find any rallying point.

Pound Loses Ground as Brexit Optimism Eases

After several days of improvement the Pound came under renewed pressure yesterday, failing to hold onto its upward momentum. While markets remain confident that the odds of a no-deal Brexit have fallen this was not enough to keep the Pound pushing higher across the board. News that MPs had abandoned a planned amendment to pave the way for a second Brexit referendum also put a dampener on the mood of GBP exchange rates.

However, the Pound could pick up once again this evening if the CBI reported retail sales index returns to positive territory.

Euro Muted as ECB Indicates Cautious Policy Outlook

In an unsurprising move the European Central Bank (ECB) opted to leave monetary policy on hold at its January meeting. However, the Euro still weakened in the wake of the announcement thanks to the more cautious nature of the accompanying statement. As policymakers indicated that interest rates are most likely to remain at their current level ‘at least through the summer of 2019’ this left investors with little incentive to buy into the single currency.

Another deterioration in tonight’s German IFO business sentiment survey may encourage the Euro to lose further ground against its rivals.

Weakening Economic Momentum Fails to Hold Back US Dollar

As December’s leading index weakened from 0.2% to -0.1% this limited confidence in the outlook of the world’s largest economy. Signs continue to point towards a loss of economic momentum in the US as the government shutdown drags on. Even so, USD exchange rates found some support on the back of the latest jobless claims data. With the labour market continuing to show signs of tightening the mood towards the US Dollar improved overnight.

If market risk aversion picks up further this is likely to support USD exchange rate gains.

Rising US Oil Production Weighs on Canadian Dollar

A lack of market risk appetite limited the appeal of the Canadian Dollar yesterday as worries over the global growth outlook persisted. The commodity-correlated currency also came under pressure thanks to the muted nature of oil prices. As US production showed a sharp, surprise increase on the week this left CAD exchange rates on a downtrend, with concerns of a fresh global oversupply glut continuing to hang over the oil market.

Without the support of any domestic data the Canadian Dollar may struggle to find much in the way of traction today.

New Zealand Dollar Softens as Credit Card Spending Eases

Credit card spending in New Zealand eased in December, contracting -0.5% on the month in spite of the Christmas shopping period. This suggests that consumers were taking a more cautious view at the end of 2018, underlining market worries over the health of the domestic economy. Coupled with a general sense of risk aversion this left the New Zealand Dollar on a weaker footing yesterday.

As long as investors remain in a jittery mood NZD exchange rates look set to remain under pressure.

Data Releases

January 25th 20:00 EUR German IFO Business Climate (JAN) 100.6
January 25th 22:00 GBP CBI Reported Retail Sales (JAN) 2

Post by TorFX

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