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Dollar Weakens – Consumer Confidence Wanes

By JOEL HOLMES

Following yesterday’s Australian Building Approvals report the local unit faced some selling pressure and tested short-term support levels near 0.7420 in early morning trade. The data showed a bounce back from March numbers increasing 4.4% vs an expected 3% with a yearly reading of -17.2%. The recovery in the numbers were led by a 9.6% increase in approvals for new apartments and showing more homes are being built than ever. With a heavy supply vs demand in the market economists are expecting to see house prices to ease somewhat. Overnight the AUD/USD pair recouped losses made earlier and strengthened thanks mainly to a weaker Greenback touching a high of 0.7469. The Aussie has notably been pushing lower, if the Aussie remains below resistance of 0.7608 there are some strong downside risks and expected to move back below 0.7400. Attention now focused on tomorrows first quarter Capital Expenditure and Retail Sales data. 

Having edged marginally higher through trade on Tuesday the great British Pound moved sharply lower through early trade on Wednesday after pre-election polls suggest the Conservatives may fall short of claiming an overall majority. Sterling plunged back through 1.2850 to immediately test supports at 1.2800. Uncertainty surrounding the election has plagued the Pound through the last week and forced a sharp correction in expectations for future Brexit negotiations. Should Prime Minister May fail to expand the Conservatives majority already difficult Brexit negotiation will become that even more untenable. With little of note on the macroeconomic docket today changes in the political landscape leading into the election will continue to dominate and drive direction. We are watching a break below 1.28 before extended moves toward 1.2710 and 1.2620. 

The New Zealand Dollar advanced overnight against its US counterpart reaching a fresh high of 0.7101, it’s the first time the Kiwi has traded above 0.71 US cents since early March. The US core PCE price Index rose 0.2 per cent in April, above market expectations but the lowest annual inflation in about 18 months. Locally yesterday Building consents for new homes fell in April, partly due to the timing of Easter. The seasonally adjusted number of new homes fell by 7.6 percent in April compared with the previous month. Well below market expectations. Today attentions turn to ANZ's business confidence survey for the month of May. The NZD/USD pair is currently trading at 0.7091. 

The US dollar has weakened across the board as major markets ramped up flows from long weekend holidays. The U.S. Dollar Index (DXY) is down 0.25% for the day as United States CB consumer confidence dropped to its weakest number since February as “Good” business conditions edged lower. Dallas Fed President Robert Kaplan has further supported two more interest rate hikes this year in an interview with CNBC overnight as he sees growth in the 2-3% region. The current CME Fedwatch tool shows a 89% chance that a 25bps interest rate increase will occur at the June Fed meeting. Both equities and commodities traded flat with 10-year treasury yields down 3bps to 2.21%. Despite being hit by low inflation reading as in Germany and Spain, the EUR/USD advanced to the 1.12 handle after a late dollar selloff with further cues to come out of the European region this evening as core inflation and the jobless rate takes focus. Yen strengthened yesterday on safe haven bids along with a strong retail sales boost. The Japanese unemployment rate was steady as the USD/JPY cross moved to a two-week low of 110.70 overnight.