Aussie rally stalls despite broader USD sell off ahead of FOMC meeting minutes
Wednesday 23 May, 2018
Daily Currency UpdateThe Australian Dollar maintained a relatively tight trading range throughout Tuesday having failed to break through resistance at 0.7590/0.76. Despite touching monthly highs at 0.7605 the Aussie failed to capitalise on its new found upward momentum and broader USD weakness as investors sold into rallies and the fought back forays attempting to drive the currency higher.
While the sell off against the Greenback has seemingly stalled fair value appears to be range bound between supports at 0.7450 and the current resistance handle of 0.7590/0.76. However, short-term upside is not out of the questions as investors look to square USD positions and with FOMC rate hikes largely priced in now the interest rate narrative that has propped up the worlds base currency is running out of steam. That said, the overwhelming USD yield differential should continue to cap gains and weigh heavily on any attempt to push back toward 0.77 through the medium term.
Attentions now turn to Domestic Q1 construction as a possible marker for next weeks GDP print while Governor Lowe speaks at the Australia-China Relations institute and the FOMC releases the minutes from it meeting earlier this month. A hawkish bias could bolster calls for a 3rd rate hike into the end of the year and act as a catalyst to inspire further USD upside while a bearish undertone will likely help support AUD attempts on 0.76.
Key MoversOpening at 0.6950 yesterday morning, the New Zealand dollar remained rangebound for much of the day within a twenty-point range. The Kiwi hit an overnight high of 0.6975 against the US Dollar at the start of the European session. Hopes of climbing back within reach of the 70 US cent handle was dashed as we saw a steady decline into early morning trade to lows of 0.6920.
The Kiwi has also been in a steady decline against the Aussie, topping out overnight at 0.9140 and could test February lows this week with RBA Governor Lowe due to speak at the Australia-China Relations Institute this evening.
With little on the domestic front again today, further movements will be dependant on the release of FOMC meeting minutes prior to the release of NZ Trade balance figures tomorrow morning.
The New Zealand dollar opens this morning at 0.6935.
The Great British Pound underwent a session of price discovery in overnight trading as the Bulls attempted to gain the momentum ahead of a special inflation report by the Bank of England. Moving to a high of 1.3491, the Sterling however quickly unwound those gains to ultimately open this morning at 1.3433.
Traders found little support during the parliamentary session on Inflation as the Bank of England dampened any hope of an August Interest rate hike. Governor Carney commentated that he is conscious that there are other meetings at which the committee could act this year, refusing to confirm or deny an August rate hike. Carney also acknowledged the softer numbers recently, alluding to the drop in retail sales, softer inflation figures and mixed labour-market figures but pledged to look at the economy “in the round”. Investors primarily interpreted the report as dovish, sending the Cable south from its pre-report daily high.
The Cable now sets its eyes on the year on year inflation reading due for release today.
With very little in the way of economic data we saw the US Index close the New York session lower once again around the 93.60 mark. Earlier in the session things were looking positive with China announcing that it will cut import duty on passenger cars to 15% signalling a further easing of trade tensions with the U.S. Germany and the U.S are the largest beneficiaries of this announcement followed by the U.K. which helped lift sentiment in European stocks. However, across the Atlantic U.S stocks did open higher but came under pressure as losses in the oil and gas, Industrial and basic materials sectors led shares lower.
Meanwhile on the geopolitical side some doubt has surfaced whether Trump will meet North Korean leader Kim Jong-Un next month in the June 12 summit. With Trump suggesting there’s a “very substantial chance” it won’t work out. He added that “If it doesn’t happen, maybe it will happen later.”
Looking ahead top tier macroeconomic data due to be released today with Cured Oil Inventories and the FOMC Meeting Minutes.
The Euro was gaining 0.3% versus the USD on Yesterday’s session but couldn’t hold on to the wins after it was reported that Italy’s new populist Government is considering Paolo Savona as the main candidate for the Finance Ministry, he is an economist who is in favor of exiting the Euro.
The Swiss franc advanced as the market sentiment turned onto risk-off mode. EURUSD closed the session slightly lower at 1.1780 (-0.1%) while EURCHF dropped as much as 0.7% to a two-month low.
Later today, the Eurozone will be reporting on PMI, which could be a good indication on how higher oil prices have been affecting the supply side of the economy.
Keep an eye on 1.1830 on the upside, it acted as good resistance yesterday, while support is sitting around 1.1755.
The loonie was the worst performer from the G-10 group on Yesterday’s session, loosing around 0.2% versus the USD after negative headlines started to hit the wires with Trump hinting that the North Korea summit might not happen on June 12 and OPEC saying they are considering an output increase due to concerns about Venezuela and Iran potential slower supply.
Consequently, WTI crude lost around 0.7% putting pressure on the loonie, which ended up closing around 1.2819. The USDCAD was not able to break below 1.2750 earlier in the session, which should now act as good support for the USD. On the upside, 1.2850 would probably bring some USD selling interest against CAD but it will all depend on the risk sentiment for the day and oil prices.
- AUD/NZD: 1.0830 - 1.0980 ▲
- GBP/AUD: 1.7580 - 1.7930 ▲
- AUD/USD: 0.7450 - 0.7630 ▲
- AUD/EUR: 0.6330 - 0.6480 ▲
- AUD/CAD: 0.9630 - 0.9760 ▲