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Risk off trade – Geopolitical tensions rise in North Korea

By Joel Holmes

Driven by broad-based US Dollar weakness and improved risk appetite the Australian Dollar is stronger this morning when valued against the Greenback. The Aussie settled late in the US session trading at its highest level since August 4th. The Aussie reached touched an overnight high of 0.7973. The Australian macroeconomic calendar will have little to offer again this week with no scheduled data releases today. Locally all eyes will be on tomorrows monthly Building Approvals for July. The AUD/USD pair is currently trading at 0.7924. We now expect support to hold on moves approaching 0.7930 while any upward push will likely meet resistance around 0.7990.

Yesterday lacked any data of economic significance and kept the NZD/USD within a range of 0.7230 and 0.7262. Fonterra Cooperative Group said its New Zealand milk collection was up by 10.4 per cent for the first two months of the season however, they reported that a small number of farms were flooded after some heavy down pours in July with farmers now facing challenging conditions. The news did little to move the NZD/USD pair and with a tick-up in US treasury bond yields this has kept a lid on high yielding currencies advancing further. On the technical front we see immediate support around 0.7220 and 0.7190. Resistance is sitting around 0.7260 followed by 0.7300.

The Great British Pound offered little through trade on Monday edging marginally higher against the USD and halting a four-week depreciation against the Euro. Sterling’s backslide stalled and the embattled cable crept marginally higher to move back through 1.29 and touch intraday highs at 1.2943 while EUR/GBP met resistance on moves through 0.9250/60. With attentions squarely on ongoing Brexit negotiations the Pound is open to further depreciations should the narrative lean harder on a heavy Brexit exit agreement. Failure to address key issues surrounding Europeans already settled in the UK has frustrated Brussels and thrown into question whether a trade deal can be negotiated in the near term. As long as these uncertainties cast a spectre over the GBP wider downward corrections remain on the table.

Macroeconomic data was light overnight, The U.S. Dollar remaining weak post last weekend’s Jackson Hole Symposium. The U.S Dollar index (DXY) which is measured against six major currencies was down 0.15% to 92.20 at the time of writing. The main movements were seen this morning as it was confirmed by Japanese Prime Minister Shinzo Abe that North Korea fired a missile which flew over the region of Japan. This caused immediate moves back into traditional safe haven currencies such as the Swiss Franc and Japanese Yen. Investors sold off the USD/JPY cross immediately from 1.0935 to 1.0862 as Japanese officials are due to meet for an emergency meeting this morning. It was better news for the Euro as it pushed to two year highs capping out at 1.1982 in its attempts to push through 1.20. Markets will be focused on further comments in Asia this morning as we look towards United States CB Consumer confidence this evening.