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Aussie retreats below 0.74

By OFX

In what was a quiet night for markets overnight due to the national holiday in the US, the Aussie opens lower this morning against its US counterpart. Yesterday’s Sydney session saw the AUD rally to intraday highs of 0.7425 on the back of some strong retail sales numbers before retreating in overnight trade before opening this morning at 0.7374. This reversal is a continuation of what has been a tough month for the AUD in the face of the broad-based US dollar rally and an intense focus on US-China trade tensions.

Although risk appetite continues to hurt the local currency, resilience in commodity prices have been largely AUD supportive and have served to limit downside moves in the short term. With global trade tensions expected to remain in focus, risks for the AUD are certainly skewed to the downside ahead of key risk events including Non-Farm payroll numbers and the FOMC’s June policy meeting minutes due out of the US.

On the technical front, new resistance can be found at the 0.74 level with any downside moves expected to meet supports at 0.7310 and 0.7246 respectively.

The New Zealand dollar edged marginally higher through trade on Wednesday touching intraday highs at 0.6783. Having enjoyed a 30 point uptick through Australasian trade the Kiwi corrected lower and maintained a tight trading band through the rest of the day struggling to break outside a 10 point range between 0.6757 and 0.6767.

Independence Day celebrations ensured volumes remained thin while Fridays Washington deadline to impose tariffs on China stifled risk driven moves and saw investors sidelined frightful of extending moves ahead of this key risk event. With appetite for risk subdued the Kiwi struggled to find any real momentum and it is unlikely upside gains will be sustained while the threat of ongoing trade hostilities remains front and centre.

Attentions now turn to the FOMC’s June policy meeting minutes and Non-Farm payroll numbers. A strong read and hawkish FOMC could underline recent USD strength and cement further upside gains while trade and Friday’s tariff deadline remain crucial in governing broader risk sentiment and short term direction.

The Great British Pound continued to strengthen yesterday firstly during the Asian session touching a high of 1.3228 against the Greenback and then again during the European session to 1.3249 following the release of UK Construction PMI data which is a leading indicator of economic health.

The PMI for services and the composite PMI both improved for June, according to the Markit surveys. The services PMI improved from 54.0 in May to 55.1 in June. The composite PMI lifted from 54.5 in May to 55.2 in June. The reading was better than expected and showed the strongest growth in eight months. The improvement shown by the service sector, which accounts for just under 80% of GDP, suggested the economy would expand by 0.4% in the second quarter – double its rate of growth between January and March. Stronger growth of service sector activity adds to signs that the economy rebounded in the second quarter and opens the door for an August rate hike.

On the technical front, support is seen at 1.3220 followed by 1.3185 and resistance up at 1.3265 followed by 1.3300.

Looking ahead, the Bank of England Governor is due to speak in Newcastle, where volatility can often be experienced during his speeches as traders attempt to decipher interest rates clues.

Trading was quite limited yesterday on the back of a US bank Holiday (July 4th Independence Day) whereby US markets were closed. Meanwhile, US President Donald Trump trade war fears still headline the US with reports it could reduce world trade by as much as 4%.

Looking ahead today and the US Federal Reserve will release the minutes of its June FOMC meeting along with ADP Non-Farm Employment Change and Final Services PMI (Purchasing Managers' Index).

From a technical perspective, The USD/JPY pair is down for a second consecutive day, closing at a daily low of 110.27. Amid a holiday in the US the EUR/USD pair reached a daily high of 1.1681. The pair is currently trading at 1.1658. We continue to expect the EUR/USD pair to hold on key support moves approaching 1.1620 while now any upward push will likely meet resistance around 1.1700.

With US markets closed for Independence Day and a lack of dramatic headlines, the EURUSD managed to stay in the 1.16/1.17 range on Yesterday’s session.

The common currency ended the session flat versus the USD around 1.1657 after trading to a low of 1.1630 and then recovering on news that some ECB members were said to be not so comfortable with the market pricing their first hike as far as December 19. Bets for a September rate hike increased on the news, pushing the Euro up from the session lows.

Focus will now turn into the US as minutes from the last FOMC meeting and employment numbers get released while tariffs on $34bn of Chinese goods come into effect on Friday.

Oil held near a 3 year high apparently affected by tighter than expected supply numbers, supporting the loonie on a rather slow session Yesterday.

USDCAD managed to stay in the 1.31/1.32 range with the loonie closing flat versus the USD around 1.3140. The probability for a rate hike on the next July 11th BOC meeting stayed above 80% and we will be getting some Employment and trade numbers on Friday.

Focus will now turn into the US as minutes from the last FOMC meeting and employment numbers get released while tariffs on $34bn of Chinese goods come into effect on Friday.