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Aussie loses nearly 2.5% this week

By SHAMEEM MUSA

The Australian Dollar extended losses through trade on Thursday as downward momentum seems to be gathering pace. Having broken key supports at 0.7730 following Wednesday’s soft inflation outlook the AUD tested new 3 month lows and touched 0.7656 and appears to be firmly entrenched within a bearish formation. As focus turns again to monetary policy divergence the Aussie’s carry and yield advantage is diminishing and investors look to be correcting recent upside. Having broken a critical bullish and bearish tipping point the AUD is poised to suffer substantial losses should a consolidation of recent downside moves mean a dip below 0.7630. Attentions now turn to US GDP data and the race for Fed presidency as key markers for both US and AUD direction into the weekend. 

The New Zealand Dollar continues to see downside movements as broader US Dollar strength hampers the domestic currency. Opening yesterday morning at 0.6885, the release of trade balance figures was somewhat disappointing, with the deficit widening to $1143 million for the month of September. Once again the 0.69 handle could not be broken, with a decline to intraday lows overnight of 0.6835. With little domestic news on the horizon, political developments and new fiscal policy agenda items could have bearing on the direction the Kiwi. The New Zealand Dollar opens this morning at 0.6840. 

The Great British Pound is weaker today when valued against its US counterpart reaching an overnight low of 1.3147, pushing the pair off its weekly high of 1.3288. The UK macroeconomic calendar was very quiet yesterday with no scheduled data releases. The main focus last night was on the European Central Bank which slashed its stimulus programme in a major policy shift. Again today in the UK there are no scheduled data releases. The GBP/USD pair is currently trading at 1.3151. We now expect support to hold on moves approaching 1.3140 while any upward push will likely meet resistance around 1.3220.

The Euro sparked a heavy sell-off against the US Dollar overnight falling over 1.5% and through key resistance levels to a low of 1.1640. The move was on the back of the October ECB meeting where it was announced its asset purchase programme would be extended for a further nine months (until Sep 2018) at a reduced monthly pace of net purchases of EUR30bn with no other changes to interest rates or to forward guidance. Markets and investors were somewhat surprised with the announcement to be viewed as a dovish taper. On the data front, US weekly jobless claims increased less than expected with the data suggesting the labour market continues to tighten, the figure came in at 233k for the week ending Oct 21st. USD/JPY has pulled backed from three-month highs and currently changing hands just under the 114 handle. Looking ahead, markets will be awaiting USD GDP figures this evening which should support the case for a December rate hike from the Fed.