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Aussie Dollar slips against the Greenback heading towards 78c

By SHAMEEM MUSA

The Australian dollar edged lower into the close on Friday slipping below 0.7850 as the U.S dollar gained new momentum on the promise of Republican tax reform. Touching intraday lows at 0.7806 the AUD was driven lower by increased expectations the U.S tax reform will pass through both the House and Senate despite widespread condemnation from Democrats. Buoyed, the U.S dollar made its largest daily advance in more than a month and forced the Aussie lower as domestic drivers remained thin. The Australian dollar remains at the mercy of monetary policy expectations and with the RBA vehemently sticking to a neutral policy standing the short-medium term outlook remains bearish. Attentions now turn to Wednesday’s CPI print as the weeks big ticket macroeconomic item and while a strong read may put pressure on the RBA it is unlikely to drastically amend the timeline for a rate hike locally and we expect the AUD to meet resistance on moves approaching 0.79/0.7910.   

The New Zealand dollar sell off continued through trade on Friday plunging through 0.70 U.S cents as investors responded to Labour’s victory in the National Election.. Breaking through a near 5-month low the NZD touched 0.6947 as losses were compounded by an uptick in demand for the worlds base currency. The US Dollar rallied on renewed promises of tax reform and forced the Kiwi toward key supports at 0.6830/.6820. A cloud now hangs over the currency until basic policy direction forms and with the election result largely priced in we expect investors will buy into any downward rally adding a floor to further depreciation. 

The Great British Pound edged upward through trade on Friday breaking an eight day losing streak and pushing back through 1.32. Despite broad US dollar strength Sterling found support following comments from Prime Minister Theresa May and progress in Brexit negotiations. Having worked through a series of key issues May and EU leaders announced they were preparing to move into the second phase of talks and begin detailed discussions surrounding future trade relationships. Sterling remains increasingly vulnerable to the ongoing Brexit conversation, however while discussions surrounding monetary policy and a November rate hike remain on the table we would expect short term support on moves approaching the psychological 1.30 handle. 

Having moved back and forth during the week between 1.17 and 1.19 against the Greenback, the Euro Dollar closed the week slightly lower on Fed members comments and hawkish sentiment. Janet Yellen spoke at the National Economist Club in Washington on Friday amid uncertainty over whether she will remain in her post as the Fed Chair. It’s down to 3 candidates, John Taylor, Jerome Powell, and Yellen with President Trump saying he likes Yellen ‘a lot’ and will make his decision ‘very shortly’. In her speech Yellen said since the beginning of March there has been a series of weak and soft readings on inflation which are unexplainable and the process of reducing the balance sheet is working well. Meanwhile in Japan, the Yen has opened lower this morning versus the Greenback following Shinzo Abe’s election win on the weekend which reinforces the likelihood of ongoing accommodative monetary policy. Gold is also lower on the weeks close, down by 2% on the back of a rebounding US Dollar.