Home Daily Commentaries Aussie bounces back above 0.72 as Yuan staves of USD push toward 7

Aussie bounces back above 0.72 as Yuan staves of USD push toward 7

Daily Currency Update

The Australian dollar bounced back above 0.72 US cents through trade on Tuesday, buoyed by renewed optimism surrounding Brexit and US/China trade relations. Positive trade talk headlines coupled with news UK and EU negotiators are one step close to finalising a deal helped bolster investors demand for risk, driving the AUD off intraday lows at 0.7172 to touch highs at 0.7218.

US and Chinese trade delegates are playing a crucial role in shaping short term AUD direction. As a proxy to Chinese growth and subsequent demand for commodities the recent trade dispute has forced a swift and heavy AUD sell off and continues to cap investors appetite to drive the currency higher. The AUD found additional support throughout trade yesterday after the Yuan rallied, shrugging aside extended downside moves toward the critical 7 handle. Should trade talks break down and the Yuan slip below 7 the door opens for a deeper AUD correction and drawback of the recent recovery.

While attentions remain affixed to trade talks, quarterly wage price data headlines this week’s busy macroeconomic docket. A surprise uptick in wages may prompt investors to bring forward expectations surrounding an RBA rate hike and help alleviate ongoing deflationary concerns.

Key Movers

The New Zealand dollar opened the morning clinging onto support at 67 US cents and has reversed momentum lower from last weeks close. Trading at 0.6715 on open, 0.67 was immediately tested as the Food Price Index showed a decline for the third time in a row for the month of October.

Positive trade talks between the United States and China supported risk based currencies, pushing the Kiwi higher to an intraday high of 0.6768 and up 0.8% for the day.

With little data domestically in New Zealand this week, the focus will shift offshore to United States inflation this evening and the resumption of ongoing trade talks. The New Zealand Dollar opens this morning higher at 0.6760.

The Great British Pound has been the top performer amongst the majors overnight, appreciating 1.2% to above 1.3. The gains were moderated late in the piece however with the Australian open pricing GBP to USD at 1.2962.

Brexit dominated all market movements for the Sterling overnight after reports that the UK and EU have provisionally agreed to the text on the Brexit withdrawal agreement. While the text itself has been settled, the Financial Times reports that the negotiations will continue over the coming days if political objections are raised by London or EU member states. The UK Cabinet will reportedly meet tonight to discuss the agreement and Prime Minister May is set to canvas each sitting Cabinet member individually throughout the day. Headlines report that PM May wouldn’t call a meeting unless she was confident she could win Cabinet support. While far from a done deal, Brexit headlines remain positive which has seen a marked improvement in the Sterling.

Domestically the economic calendar also buoyed the Pound with UK wage growth coming in slightly stronger than expected. While wage growth grew to its highest level in nearly a decade, the unemployment rate did tick higher, tempering market optimism. Nevertheless, it does provide some impetus for the Bank of England to further hike rates in the future.

Moving into Wednesday the Pound will keep all attention on on-going Brexit headlines. UK CPI, RPI and PPI are also set for release later in the day.

A Stronger Great British Pound and Euro has weighed heavily on the greenback overnight as positive Brexit news dominated headlines over the past twenty-four hours. The US Dollar index which measures a basket of currencies was sold off in the European session, dropping 0.5% for the day after seeing an intraday low of 97.10.

Positive trade talks resumed between the United States and China by Treasury Secretary Steven Mnuchin, weighing on the greenback as market participants flooded back into riskier based currencies.

Little came out of FOMC members Lael Brainard overnight as market now focuses its attention to a number of Chinese data releases today followed by the release of United States Core inflation figures for the month of October.

Brexit and Italy continued to drive direction for the Euro, although the news has been decidedly positive with regards to Brexit. Moving more than 0.5%, the Euro rebounded strongly against the Greenback to touch 1.1285 this morning.

A divorce deal looks likelier than it ever has over the past few weeks as the UK and the EU have reportedly provisionally agreed the text on the withdrawal treaty. While the language from both parties has been tempered at best, the market has taken the news positively and seen both the Euro and Pound appreciate significantly against the worlds reserve currency.

Italy is also set to make waves early this morning with the Italian Cabinet scheduled to meet to discuss the next move on the budget with the EU. Moderating Euro advances, the Italian situation continues to hamper the EU.

Moving into Wednesday the market will keep a close eye on continuing negotiations with past and present member states of the union. The domestic calendar remains light but does have German GDP and French CPI readings to digest.

The Canadian dollar moved lower through trade on Tuesday underperforming against most major counterparts. The Loonie gave up Monday’s gains following oil prices lower as Monday’s 1% uptick was undone and the month-long reversal deepened. Running through 0.7550 the CAD battled the largest daily dip in the value of WTI Crude Oil since 2015 and continues to edge ever nearer key supports and 12 months lows at 0.75.

With little of note on the macroeconomic docket, oil prices and trade will continue to drive broader direction and flow.

Expected Ranges

  • AUD/NZD: 1.0610 - 1.0780 ▼
  • GBP/AUD: 1.7810 - 1.8250 ▲
  • AUD/USD: 0.7130 - 0.7320 ▲
  • AUD/EUR: 0.6320 - 0.6420 ▼
  • AUD/CAD: 0.9425 - 0.9580 ▲