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Aussie testing 12 month lows as trade concerns weigh on sentiment

By OFX

The Australian dollar struggled to gain any meaningful traction through trade on Monday as a broader bearish bias plagued the commodity driven unit. Testing key technical supports at 0.7430 and 0.74 the AUD touched intraday lows at 0.7413 as ongoing trade tensions between the US and China continued to weigh on investors’ appetite for risk.

While only marginally lower on the day the AUD is poised to test year to date lows and levels not seen since June 2017 as broader risk off trade and a larger rebalancing of USD following last weeks ECB policy announcement forced investors to review long positions as the divergence in central bank policies again drives broader direction. Having outperformed through late May and early June the FOMC’s interest rate increase and hawkish policy outlook when contrasted with an accommodative ECB and RBA highlights the ever burgeoning gap in interest rate yields and will continue to act as a backstop to broader USD support.

Attentions now turn to the RBA’s June meeting minutes and commentary from ECB president Mario Draghi for broader direction through trade on Tuesday.

The New Zealand dollar opened the week at 0.6935 hoping to cling onto support at the 69 US cent handle. Movements were light with a lack of domestic data and a Chinese bank holiday observed for the day. Investors saw a thirty-point range holding onto short term support of 0.6920 with potential bears in play should it not hold at these levels.

On the horizon tomorrow is the latest GlobalDairyTrade, hoping for an improved mark from the swing into negative territory on June 6th with a reading of -1.3%.

Despite seeing an overnight high of 0.6955, we saw the kiwi fall back to open square at 0.6935 against the US Dollar.

The Great British Pound moved lower through trade on Monday ahead of a crucial Brexit vote and Bank of England Policy announcement. Breaking through 1.3250 sterling touched intraday lows at 1.3225 and sits only marginally above 2018 lows at 1.3205.

Investors continue to re-evaluate BoE policy expectations and with the MPC expected to maintain the current policy setting at this Thursdays June meeting attentions turn to the accompanying commentary for broader direction. August remains a focal point and marker for a possible rate hike and poses a risk to deeper GBP losses. Should the BoE fail to proffer a tightening of financial conditions then a 2nd bout of cable selling will likely ensue as the gap in central bank monetary policy settings grows ever wider.

With attentions squarely focused on the BoE and key Brexit talks at the end of the month we expect the GBP will maintain a narrow range at least into Thursday.

The United States Dollar eked out further gains against commodity currencies in overnight trading but remains relatively rangebound against its counterparts in Europe. The US Dollar Index (DXY) opens this morning at a healthy 94.76, reflecting a slight decline of 0.13%.

The market enjoyed a relatively calm Monday with little from the Whitehouse or the domestic Economic Calendar to drive investor interest. However, slight movements did originate from Europe with the Euro gaining some ground against the USD to open at 1.1621 this morning. Spurred on by a positive speech from the ECB, market jitters from the previous week seem to have subsided and found support at current levels.

Across the channel, the Great British Pound fared markedly poorer than its European counterpart, swapping hands this morning at 1.3245. Bogged down by further Brexit instability, the Cable looks to find its feet this morning. Turning to Asia, both the Aussie and Kiwi were whittled down over the Monday session to open this morning at 0.7421 and 0.6932 while China enjoyed a bank holiday.

Attentions now turn to central banks with the Reserve Bank of Australia releasing monetary policy minutes and another speech from ECB president Mario Draghi. Closer to home, the US looks to Building Permits to drive momentum.

The Euro recovered slightly versus the USD, holding above the 1.16 figure with a 0.11% increase at 1.1620. The Eurozone currency opened the week pressured to the downside on weekend reports signalling some coalition government disagreements around asylum and refugee policies, trading all the way down to 1.1565, -0.4% for the day versus the USD.

But during the start of the European session, it was reported that German Chancellor Angela Merkel was keen to accept the deadline set by the CSU party for finding a refugee solution before the end of June, marking the start of a recovery for the EURUSD which spiked all the away to a session high of 1.1624.

Next levels to watch are Friday’s high of 1.1627 on the upside while apparently there are some option-related buying interest around 1.1510 that should provide support on the downside.

The loonie traded within 1.3160 and 1.3240 and closed the session 0.10% weaker versus the greenback, at around 1.32.

Trade protectionism and weakness in Emerging Markets have been putting pressure on commodities currencies like the CAD and the AUD. In the case of the CAD, uncertainty around potential OPEC production increases and rate differentials between US and CAD interest rates, have also been affecting its performance versus the USD.

Short-term levels to watch for USDCAD today are 1.3240 on the upside and 1.3160 on the downside, which acted as good support for the USD on yesterday’s session.