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Aussie tests 0.74 U.S cents as European Migration Deal bolsters risk appetite

By OFX

The Australian dollar edged back above 0.74 U.S cents late Friday following a last minute month end rebalancing and USD sell off. The word’s base currency edged lower into the daily close as mixed macroeconomic data and an improved appetite for risk forced the unit to a three-day low when measured against a basket of major currencies counterparts.

Touching intraday highs at 0.7413 the AUD followed the Euro higher after an EU migration deal was announced driving demand for risk and improving calls for equities. Having moderated on open the AUD remains vulnerable to broader risk trends and trade tensions. Resistance should remain intact on moves approaching 0.7430 while broader risk appetite remains persistently subdued. Attentions today turn to the PBOC and the setting of its mid-rate as a marker of broader risk sentiment, while China manufacturing PMI dominates the macroeconomic docket through Asian trade. Watch ranges between 0.7330 and .7430 leading into tomorrow’s RBA rate statement.

The New Zealand dollar enjoyed month end support as investors buoyed by a renewed European migration deal bolstered calls for higher yielding assets driving risk appetite higher late on Friday. Creeping back toward 0.68 U.S cents the NZD touched intraday highs at 0.6792 but struggled to foster any real momentum and drive beyond resistance and opens this morning marginally lower at 0.6773.

Having broken comfortably below supports at 0.6850 last week the NZD is now testing moves below 0.6770/80 with a break outside this handle prompting a deeper push toward 0.6724/5 and perhaps on to 0.66. Like its antipodean cousin the NZD remains vulnerable to broader risk trends and trade tension with upside gains limited through the short to medium term as attentions turn offshore with little in the way of headline data crowding the kiwi domestic docket this week. With resistance on moves approaching 0.68 and 0.6850 we are keenly watching supports and moves toward 0.6725 for any signal the bearish channel may deepen.

The Great British Pound recovered from fresh 2018 lows after bottoming out at 1.3050 in last week’s trade. Sterling saw short-term upside momentum on Friday evening, moving higher just under the 1.32 handle against its United States counterpart.

Sterling was supported by the revised chance of the possibility of a rate hike in August and an uptick in revised final GDP figures of 0.2% for the quarter after a slow start to the year. The main boost came from services output which rose by 0.3% and at its fastest pace since November 2017.

Movements higher will be dependent on the outcome of a raft of macroeconomic data released on the domestic front this week kicking off with Manufacturing PMI this evening.

The Great British Pound opens this morning at 1.3200.

Looking ahead this week in the US and the macroeconomic calendar will be quite busy. Beginning on Monday with the release of Manufacturing PMI for the month of June. Tuesday will see the release of both ISM Manufacturing PMI and Construction Spending. Wednesday will be quiet on the back of a US Bank Holiday. No doubt this week attentions will remain firmly focused on Thursdays Nonfarm Payroll report. For this June, the economy is expected to have added 200K new jobs somewhat less than the prior 223k. While the unemployment rate is seen steady at 3.8% in June. Wage growth is seen up 0.3% MoM and 2.7% YoY, matching April figures. The greenback could extend last week’s strong gains if US wage growth shows signs of accelerating.

From a technical perspective, the US Dollar this morning is currently stronger against both the Japanese Yen 110.65 and Great British Pound 1.3200. Steady against the Euro. The Euro was unable to extend its previous week's recovery, currently trading at 1.1670 against the Greenback. The macroeconomic calendar in Europe is full this week kicking off on Monday with the Unemployment Rate Decision followed by Tuesdays release of Retail Sales for the month of June. We continue to expect the EUR/USD pair to hold on key support moves approaching 1.1500 while now any upward push will likely meet resistance around 1.1720.

The EURUSD advanced around 1% on Friday as the optimism that started from the EU migration agreement announced during the Asian session continued into the US close.

USD and JPY where the main losers while EURJPY demand also helped the Euro to strength all the way to 1.1684 despite ECB Mario Draghi warning EU leaders that the economic impact from the trade war drama could be higher than expected.

Next levels to watch for the EURUSD are 1.17 on the upside while 1.1620 should act as first support on any correction. From a data perspective, this week we’ll receive PPI, retail sales, unemployment and PMIs.

USDCAD fell almost 1% to 1.3133, the lowest level in the last 2 weeks following an important increase on rate hike probabilities for the next BOC meeting on July 11th (moved to around 80% from around 50% earlier in the week).

The loonie was supported by broad USD weakness, strong Oil prices and relatively better than expected economic data with industrial prices for May coming at 1% (vs. 0.9% expected) while GDP came at 0.1% (vs. 0% expected).

This week will bring Manufacturing, Unemployment data and probably more NAFTA related Headlines. From a technical perspective, we’ll have to see if the USDCAD is able to hold above 1.3135 or we can confirm a downward break and we go back to the 1.2950/1.31 range.