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AUD edges lower as Treasury yields drive USD recovery

By OFX

The Australian dollar enjoyed a subdued and quiet start to the week offering little to excite investors and push recent bounds. Maintaining a tight trading band and bouncing between 0.7545 and 0.7565 for much of the day the AUD edge lower throughout North American Trade as 10 year US treasury yields edged higher touching 3% and 2 year notes touched a ten year high at 2.55%. The uptick in yields forced the Aussie lower into the close and we open this morning buying 0.7525 U.S Cents.

While broader markets were largely passive through trade on Monday the slowdown in USD gains is perhaps indicative of a wider market trend and suggest the pace of US appreciation has moderated. As mentioned previously the AUD appears reasonable well supported at levels approaching 0.7430 and 0.74 and markets will need to see a consolidated break below these handles before gapping lower and extending the bearish downturn.

Attentions this week turn to tomorrow’s all-important wage growth print. Released quarterly this read will be closely monitored by domestic traders. Wages have not kept pace with gains in employment and suggests there is still considerable slack within the economy. A strong read could prompt speculation that consumer led growth and inflation will pick up pace however a soft print will only affirm expectations the RBA will maintain a neutral policy stance into February 2019.

The New Zealand dollar opened the week looking to claw back losses over the past week at 0.6960 U.S. Cents. Absent from any domestic data yesterday, local markets continued to trade off last week’s more dovish monetary policy statement from incoming RBNZ Governor Adrian Orr.

The Kiwi drifted from morning highs of 0.6975 with a change in sentiment in afternoon trade and into the offshore sessions, seeing a pullback to a low of 0.6910 and below the 200-day moving average. With a continuation of underperformance from the NZD/USD cross there could be a test at first support levels of 0.6880.

Across the Tasman we see the release of RBA monetary Policy minutes for the month as the NZD/AUD rate continues to fall and potentially give up all gains for the year as we test January lows of 0.9180.

The New Zealand dollar opens this morning at 0.6915 against the US Dollar and will look to take further cues from the release of Chinese data including retail sales.

The Great British Pound is steady this morning when valued against the US Dollar. The Pound Sterling did touch a 24-hour high of 1.3608 on the back of broad US Dollar weakness. Looking ahead today and all eyes will be on the employment data release which is expected to remain steady at 4.2 percent.

The economy is expected to have added 7.5K new jobs in April. The GBP/USD pair is currently trading at 1.3556. We continue to expect support to hold on moves approaching 1.3540 while now any upward push will likely meet resistance around 1.3620.

The Bloomberg Dollar Index ended the session stronger mostly due to continued weakness in Emerging Markets. The Argentinian Peso lost more than 7% despite Central Bank intervention.

Additionally, the USD found support from US yields, with the US 10-year Treasury yield topping 3% again and US equities ending the day almost flat.

Tonight we will get important data that could give some insights into the next USD move, the Eurozone will report GDP for Q1 while US retail sales are expected to come at +0.3% month-over-month.

The Euro was strengthening versus the USD last night after ECB Villeroy reminded markets that ECB rate hikes will come quarters and not years after Quantitative easing ends, also generating a spike in yields across some European countries (The German 10-year yield increased more than 5 pips). Unfortunately, the Euro couldn’t hold on gains and ended the day weaker around 1.1930.

Next technical levels to watch for the EURUSD are 1.20, which acted as a strong resistance on yesterday’s session and 1.1860, which should act as first support on the downside.

From the data front, we will get Eurozone GDP and CPI numbers with some market participants believing that the risk might be on the downside given recent geopolitical risks plus the impact of higher oil prices and weaker foreign demand.

The loonie ended the day slightly weaker versus the USD, but more importantly, it was able to trade above the short-term resistance at 1.28 ahead of US retail sales data tonight, which is not great news for the CAD.

USDCAD traded sideways in the Asian and European session and was able to find support around 1.2750 but the loonie was not able to compete against the broad USD strength during US session, even with oil prices moving higher.

Next levels to watch will be 1.2850, that should act as first resistance, and 1.2750/1.2770 acting as short-term support.