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Embattled USD gives up gains earned from upbeat Fed

BY MATT RICHARDSON

The Australian Dollar has closed the week a cent higher above 76 cents when valued against its US counterpart. Having seesawed through the week on the back of the Federal Reserve meeting, the Aussie has gained traction and is currently buying .7620 at the time of writing. With little to none macroeconomic data to focus on, the local unit looked offshore for direction on Friday which came mostly out of the United States. Dampening optimism over the US economy with U.S consumer sentiment figures declining in May as well as U.S homebuilding numbers falling for a third straight month gave the Aussie a boost. The RBA governor is due to speak this morning which is followed by New Motor Vehicle Sales and CB Leading Index.

The New Zealand Dollar had a strong week, rallying through March highs to 0.7316. Finding quite strong resistance at these levels, the Kiwi was not able to maintain these heights and saw all gains paired on Thursday evening to a low of 0.7180, after a lower than expected NZ GDP print for the quarter. Hopes were boosted on Friday morning as NZ Manufacturing activity expanded for the month of May, reaching its highest level since January 2016. A soft lead from United States consumer confidence nudged the NZD/USD cross higher to finish up 0.6% for the day. Further movements this week will be dictated by the latest GlobalDairyTrade Auction out on Wednesday, along with the RBNZ’s interest rate decision on Thursday where it is expected interest rates will remain on hold at the benchmark rate of 1.75%. The New Zealand dollar opens at 0.7250 this morning.

The Great British Pound opened this morning slightly higher against the US Dollar on the back of soft US data during Friday’s session. Looking ahead this week and all attentions will be on the start of Brexit negotiations today.  Since Prime Minister Theresa May failed to secure a majority government in the recent UK elections it seems the EU will set the terms. The key issues will include the size of a "divorce" bill, how the U.K. will trade with the EU once it leaves, and the status of EU nationals and Britons living in the EU. The GBP/USD pair is currently trading at 1.2769. We now expect support to hold on moves approaching 1.2750 while any upward push will likely meet resistance around 1.2790. 

The U.S Dollar moved lower through trade on Friday giving up gains earned in the wake of the FOMC’s upbeat and hawkish economic assessment to touch near 8 month lows. Weaker than expected consumer sentiment and housing data heightened concerns wider economic growth is stagnating and with little progress coming in the form of promised fiscal reforms from the Trump administration the disconnect between markets and the Fed appears to be growing wider. The Euro moved back through 1.12 to touch intraday highs at 1.1207. The dollar moved back through 111 JPY having earlier touched two weeks’ lows after a dour BoJ commentary. Central Bank Governor Kuroda emphasised the need for ongoing stimulus to correct the gap between real and target inflation disappointing some market analysts who envisaged a winding down in stimulus programs. With little domestic data on hand today direction will be derived from wider risk flows as demand for U.S equities wanes and bearish sentiment remains intact.