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Aussie makes a new low in 2018

By OFX

The Australian dollar opens weaker this morning against its US counterpart on the back of further trade tensions between the trump administration and China. As global risk sentiment continues to Sour, the Aussie dollar is struggling to keep pace with the safe haven USD. The Aussie has fallen to an 18month low overnight of 0.7324 and is expected to remain under pressure as the yield differential continues to move in favor of the USD.

Looking ahead today and the Australian macroeconomic calendar is empty with no relevant data releases. Therefore the Aussie Dollar most likely follow the lead of equities. Japan will release retail sales figures for May at 9.50am AEST.

From a technical perspective, the AUD/USD pair is currently trading at 0.7344. We continue to expect support to hold on moves approaching 0.7300 while now any upward push will likely meet resistance around 0.7430.

The New Zealand Dollar has been one of the worst performers amongst it’s G10 counterparts with the bulk of the damage done during Wednesdays New Zealand Session. The fall in the Kiwi is seemingly a biproduct of weakening global risk sentiment and a weaker than expected business survey which showed confidence activity indicators slipping lower.

The underperforming currency fell from 0.6840 to 0.6779 against its US counterpart, representing its lowest level since June 2016. In what was of no surprise to markets, the RBNZ opted to keep it’s cash rate on hold at 1.75% however there were some slightly more dovish tones emanating from the subsequent statement. RBNZ governor Orr reinforced that the direction of the next rate move was still uncertain and that the governments fiscal spending plans were lower and later than anticipated.

On the back of this weakness the AUD/NZD managed to rise from 1.0820 to 1.0856 before retracing back lower and opens this morning at 1.0811.

The Great British Pound suffered another poor day as the Sterling quickly approached the 2018 low of 1.3102. Currently changing hands at 1.3118, the Sterling fell victim to further Greenback strength as the worlds reserve currency strengthened against all crosses.

The Cable initially treaded water for most of the day until Governor Mark Carney of the Bank of England held a press conference on the Financial Stability Report. Ultimately a sobering affair, Governor Carney highlighted the numerous challenges to the economy, such as global risks and derivatives which Traders took as dovish in the context of any cash rate decisions. Alarmingly, the BOE indicated that it had serious concerns about the trillions of pounds of derivative contracts at risk under Brexit with ongoing legal concerns about contract continuity.

Looking forward the Great British Pound turns to the first day of the EU Economic Summit and the US GDP figures for direction.

US-China trade sentiment soured further overnight, forcing US Equities and treasury yields lower through US trade with the S&P500 down 0.7% and treasury yields falling to 2.82% and 2.5% for the 10 and 2 year respectively. In contrast we saw the USD index rise 0.8% on the day to touch 9 month highs as the deterioration in risk appetite continued to support the save haven currency. The price action was precipitated by commentary from one of trump’s key economic advisors regarding China’s reply to US trade demands which have been deemed ‘unsatisfactory’ and the president would not be retreating on China.

US durable goods orders came in softer than expected however the trade deficit for the month of may beat expectations as it shrunk to 9-month lows. Although this did have limited impact on the currency, it certainly adds to the likelihood of a rebound in net exports in Q2 GDP with current estimates expecting a 4.5% annual increase. The calendar for the rest of the week will be unlikely to move markets as we see jobless claims and some Fed speak from Atlanta Fed president Bostic, although he is unlikely to speak on monetary policy.

At the time of writing the worlds base currency trading at 0.7342 against the AUD, 1.3118 against the GBP, 1.1561 against the EUR and currently buys 110.266 Japanese Yen.

The EURUSD slipped again below 1.16, loosing around 0.80% versus the greenback and closing at 1.1554.

The drop was mainly due to broad USD strength, with the Dollar Index closing at a new high for the year driven by risk-off market sentiment around US/China trade concerns, strong US economic data and end of quarter USD demand.

The European side of the equation didn’t help either with Italy signalling they will go against migration decisions at the Eurozone Summit, which starts Today. This would have a negative impact on Germany’s Merkel willingness to close a deal to avoid stress within her own coalition government. The summit will probably show different opinions around Brexit, which is also weighting down on the Euro.

Next levels to watch for the EURUSD are support at 1.1543 (June 15th low) and on the upside, resistance seems to be sitting around 1.1720.

Another negative session for the loonie, with USDCAD reaching a new Year high at 1.3386 but then recovering a bit thanks to surging oil prices. The CAD still ended the session losing more than 0.20% versus the greenback at 1.3342.

The CAD also suffered from BOC Stephen Poloz declaration, who said a potential interest rate hike in July will be dependent on data (specially housing) and how the recent trade turmoil will impact Canada. The probability of a rate hike at the July meeting fell to 52% from 61% before the comments.

Next levels to watch for the USDCAD should be Yesterday’s session high (YTD high as well) at 1.3386 with first support seen around 1.3265.