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AUD and EUR Outperform

By OFX

Against a backdrop of increased risk appetite, the Aussie dollar’s great week continued as it outperformed it’s G10 peers on Wednesday. Lasering in on the Aussie dollar for now, yesterday’s stronger than expected Q1 GDP print yesterday ensured the local currency extended its Monday and Tuesday gains to finish up 0.6% on the day. The read was largely in line with the RBA’s projected growth outlook with real GDP rising 1% q/q and GDP growth of 3.1% providing the strongest read since Q2 2016. A buoyant labour market and employment conditions seem driving the improvements however with underlying wage growth still subdued, the RBA remains cautious regarding its monetary policy outlook.

The upward momentum was carried into the London and US sessions overnight as the AUD/USD raced to fresh one-month highs of 0.7677 as markets embraced risk and commodity prices firmed. The pair is up 100 pips from Fridays close, representing its best week since January when compared against Its US counterpart. Australia’s busy data week is set to continue this morning with April trade balance reports due out at 11:30 which will be closely watched by traders looking for further reassurance from the local economy.

New technical levels to watch on the upside are our June 6 and May 5 highs of 0.7700 and 0.7725 respectively with supports to the downside now seen at levels closer to 0.7605

The New Zealand dollar has traded rangebound for the last few days now, hovering around the 0.7030 level against the USD with second tier local macroeconomic data yesterday failing to surprise markets and continuing to point towards a soft upcoming Q1 GDP read. In what has been a quiet week, the NZD opens lower against the 0.5% the AUD, 0.3% lower against the EUR and up 0.4% against the JPY as the yen continues to struggle against a backdrop of rising global rates and increased risk appetite.

NZD/USD did manage to reach monthly highs of 0.7060 towards the back end of the Sydney session but was unable to preserve these gains with the pair retreating to levels around 0.7030. We open this morning at 0.7036 and with the economic calendar particularly light to finish off the week, we expect global risk appetite to remain a key driver in the near term.

On the technical front, key support is pinpointed at the 0.6880 level with any upside moves appearing to reach resistance at the 0.7060 handle.

The Great British Pound crept higher through trade on Wednesday taking advantage of a broadly weaker US Dollar. Pushing back through 1.34 Sterling touched intraday highs at 1.3442 before ongoing concerns surrounding upcoming Brexit talks capped gains and ensured the pound remained largely range bound.

Having suffered a dramatic sell off through the last 6 weeks sterling has found some support this week in improved macroeconomic indicators. The uptick may suggest the broader economic softness suffered throughout the first quarter was in fact transitory or temporary and lends itself to suggestions the Bank of England can raise rates in August. However, Brexit risks are again beginning to take centre stage ahead of key talks scheduled for the end of June. There is an overriding concern the May government will not be able to negotiate an exit strategy that will protect all three pillars of the UK economy (Distribution, Production and Financial Services) and as such the long term growth outlook remains clouded.

Having struggled to advance beyond 1.3450 we expect resistance on moves approaching this level with further topside stops at 1.36 as attentions now turn inflation expectations Friday ahead of a heavy macroeconomic docket next week headlined by monthly Manufacturing Production numbers, Wage Growth data, CPI and Retail Sales. Strong reads across the board could help to underpin recent supports at 1.33 while softness will only extend the bearish turn and lead to further downward extensions.

US equities and bond yields followed global risk sentiment higher overnight as the US dollar index retreated another 0.2% on the day. The S&P500 soared to fresh 3-month highs overnight with the US 2 and 10 Year treasury yields also ticking higher to 2.52% and 2.98% respectively. The USD particularly struggled against a resurgent Euro overnight as commentary from the ECB regarding the unwinding of quantitative easing measures sent the EUR/USD to 2-week highs. Respite for the USD was found through weakness in the Japanese Yen was sold off amid rising global rates and risk appetite.

With overnight news of the US trade deficit narrowing to 7-month lows overnight, the focus will now turn to employment data in the form of initial jobless claims due out tonight. The G7 meeting set for this weekend will also be of interest to traders with the topics of trade wars and tariffs sure to be in the spotlight. We will be watching the commentary closely with the prospect of global trade wars continuing to weigh on the USD.

The EURUSD was well demanded on Yesterday’s session, closing around 1.1775 (up more than 0.5%) on a broad risk-on move that saw corrections in safe haven currencies like JPY and CHF but supported a pick up in US yields (with the US 10Yr Treasury back up to 2.97%) and the S&P Index up almost 1%.

On the other hand, Italian yields rose again (moving close to 3%) but that didn’t stop the Euro, which was apparently also supported by recent ECB confirmation that next week’s meeting will be a live Q&A discussion of their Quantitative Easing exit, something not expected by the market that shows their willingness to start talking about the stimulus removal.

Next levels to watch are 1.1850 on the upside and 1.1745, the June 4 high, which should act as first support.

Another tricky session for the loonie, which struggled to capitalize on the broad dollar weakness/risk-on move. The loonie still ended the session on positive territory, up around 0.15% versus the greenback, although at some point during the session it was up 0.9% as the USDCAD reached a new month low of 1.2859.

The market initially supported the CAD as Headlines appeared that the US was willing to negotiate individual NAFTA trade agreements, but then a report that White House officials are discussing additional penalties on Canada coupled with a correction in oil prices generated a reversal in the USDCAD, which jumped from 1.2860 all the way up to 1.2945, where it has now settled.

Next levels to watch for the USDCAD are 1.3050 (resistance) and yesterday’s lows at 1.2859 as support.