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Aussie breaks back through 0.75 as attentions shift to FOMC

By MATT RICHARDSON

The Australian dollar saw a gradual rally yesterday and popped above the 0.7500 mark in local trading. Starting the Day at 0.7470, we saw the Aussie rally to a three week high of 0.7515 as risk on sentiment continued. The AUD/USD failed to capitalize on gains overnight as a recovery in the Greenback was supported by higher US Treasury yields, with markets positioning themselves before a potential Fed hike in next month’s meeting. US Dollar index was 0.4% stronger for the day as decent economic data out of the United States supported the Greenback move with the Australian dollar lower on open at 0.7475.

The Great British Pound has drifted lower following a confirmed terror attack at a pop concert in the Northern England City of Manchester yesterday, tragically 22 people lost their lives and injured more than 59.  GBP/USD ended the day near its lows, failing to hold above 1.300 and is also lower against the Euro and Japanese Yen. On the data front the UK’s deficit expanded to GBP 9.6 billion, a lot higher that estimates of GBP 8.0 Billion, this has marked the largest deficit since November 2016. The CBI’s latest report on the UK’s retail sector showed that retails sales had flattened out this month compared with a high increase in April. With rising inflation, households are tightening the purse strings add this to higher import cost pressures from a weaker Pound, it is creating a challenging environment for retailers. On the technical side, we now expect immediate support at 1.2946 followed by 1.2865 with the pair seeing strong resistance around 1.3060.

The New Zealand dollar was the day’s biggest mover as investors continued to extend recent gains on improving risk appetite. Moving through resistance at 0.7020 the Kiwi touched intraday highs at 0.7047 before moving lower into the daily close. The NZD has enjoyed a run of positive momentum having challenged key supports at 0.6830 just two weeks ago and we could see the dairy driven unit test 0.7050 and 0.71 on the back of upbeat trade balance data and a favourable Fonterra milk price forecast (due this week). Opening at 0.7010 attentions shift to the FOMC and US interest rate expectations for wider direction into the end of the week. 

The US Dollars downward spiral stalled through trade on Tuesday as investors pared losses and attentions shifted away from recent political uncertainties to the FOMC’s meeting minutes and expectations surrounding future rate hikes. Market participants increased bets the Federal Reserve will amend interest rates when it next meets in June despite a string of softer macroeconomic data sets. Voting members on the Fed’s Open Market Committee have continued to support a tightening of monetary policy helping prop up the dollar and minimise the impact of recent sell offs. The Euro moved back through 1.12 as profit taking took hold while the dollar forced itself back toward 112 JPY having touched intraday lows at 110.88. Attentions now turn to the day’s big ticket item and the FOMC’s Meeting Minutes. Analysts will be closely attuned to the commentary and voice accompanying the minutes as a key marker of expectations leading into next month’s highly anticipated member assembly.