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Australian dollar rebounds on higher oil prices

By OFX

The Australian dollar opened Friday morning skating on thin ice at 0.7375 and looked to recover from a weekly low of 0.7345, levels not seen since the corresponding period last year. Fortunately for the Aussie, a correction was seen during intraday trading and rallied through June 20 tops to close the week above the 74 US cent handle. A combination of both rising oil prices and rebound of commodity-based currencies supported moves higher.

A weaker than expected Manufacturing PMI reading on Friday evening in the United States allowed the Australian dollar to see a close of 0.7439 and take a breather from its current weakness on the currency markets.

With little on the domestic ticket this week, the AUD could continue potentially sustain upside movements in its march back towards US 75 cents assuming we can maintain above support levels at 0.7410. This week’s crucial United States GDP number mid-week looks to be the major macroeconomic driver as the Australian dollar dipped slightly lower on open and sits at current levels of 0.7425.

The New Zealand Dollar came under selling pressure last week falling to a fresh new 2018 low of 0.6854 on the back of increased trade war tensions between the US and China.

Looking ahead this week and the UK macroeconomic calendar is light with no relevant data releases until Wednesday which we will see the release of both Trade Balance report and ANZ Business Confidence. On Thursday will see the release of the Reserve Bank of New Zealand Interest Rate announcement where the cash rate is expected to remain on hold at 1.75%. Finally on Friday Building Consents for the month of May.

From a technical perspective, the NZD/USD pair is currently trading at 0.6916. We continue to expect support to hold on moves approaching 0.6870 while now any upward push will likely meet resistance around 0.6960.

Last week saw the pound rise to six-day highs after Thursdays Bank of England meeting reinforced expectations of a further rate hike this year and possibly as early as August. Although policy makers did opt to keep rates on hold at 0.5%, the bank’s chief economist unexpectedly voted for an interest rate hike which forced the GBP higher. This positive interest rate sentiment was further compounded by broad based dollar weakness on Friday, allowing the GBP/USD to surge 0.5% on the day to touch 6 day highs of 1.3312 in early European trading.

In what is a continuation of a challenging month for the British currency, the pound did surrender most of these gains throughout the day on Friday falling to levels closer to 1.3260 and 87.75 against it’s US and EUR counterparts. Worries of an economic slowdown and further uncertainty British diplomats ability to secure a favourable Brexit deal with the European union continue to weigh on the pound. In light of the recent BOE policy meeting, markets will now be closely watching domestic macroeconomic datasets for any indication of an uptick in the domestic economy to cement an August rate hike which could provide some upside for the pound in the near term.

At the time of writing the pound is currently trading at 0.5614 against the Australian dollar, 1.0761 against the NZD and 0.6378 against the Euro.

The US Dollar was one of the days worst performers Friday moving lower against all major counterparts as equities found support and risk appetite crept back into the market. Strength across European macroeconomic indicators and a dip in 10 and 2-year US treasury yields saw investors square positions. While risk appetite ebbs and flows, driving short term volatility broader direction was driven by the growth and divergence in monetary policy platforms. Short Term outperformance should be maintained while expectations for two 2018 rate hikes and three 2019 rate adjustments remain on the table.

In that light, we turn our attentions to a relatively crowded macroeconomic docket. Focus this week shifts to key Q2 GDP and inflation data across both the US and Europe. A rebound in growth across Europe could signal a broader global recovery and drive improvements in risk appetite which may help short term corrections across emerging markets and commodity driven currencies. That said we expect the USD will largely maintain recent gains on moderate and stronger data sets.

EURUSD increased around 0.405 on Friday, in line with other major currencies strength against the US dollar. The Euro managed to climb all the way back from the session lows at 1.1620, finding good resistance around 1.1670 and finally closing the week around 1.1651 in late US trade.

European market sentiment on Friday was positive, with equities increasing influenced by energy stock strength following OPEC agreement (which pushed oil prices more than 4% up) and better than expected Eurozone PMI data.

EURUSD is opening slightly stronger today in Asia and this week will bring IFO data from Germany and retail sales from the Eurozone plus a couple of ECB speakers.

The loonie was having a very difficult session versus the US dollar after Inflation and retails sales data misses on Friday saw the USDCAD spike to a new year high around 1.3382.

And then OPEC agreement came, oil jumped more than 4% and the loonie reversed all of the losses to close in positive territory as USD suffered across the board. USDCAD dropped from the 1.33 highs to 1.3269.

Oil is opening weaker on Monday, after more details around the OPEC agreement were defined during the weekend, as such the loonie is opening marginally lower versus the USD at 1.3272.

Next levels to watch from a technical perspective for the USDCAD are 1.3240 and 1.3340 (support/resistance)