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Aussie range bound as BoJ in Focus

By OFX

The Australian dollar offered little to excite investors through trade on Monday maintaining a tight 30 point handle, ignoring broader equity weakness and a general risk off environment. Broader risk sentiment was weighed down by another day of heavy losses across US tech stocks and with little news flow prompting direction the AUD struggled to mount any meaningful extensions towards support or resistance. Edging upward to touch intraday highs at 0.7413 the AUD opens this morning at 0.7407 as attentions turn to key central bank commentaries.

The Bank of Japan meets today amid rumors it will tweak its monetary policy stimulus program. In a bid to ease pressure on its domestic banking sector the BoJ is expected to amend its yield curve controls, a move that could prompt an until in Japanese Government Bond yields, reducing Japanese institutional investors demand for foreign bonds and prompting a re-direction in assets back towards the Yen. While the bank is unlikely to make any wholesale changes to it stimulus program without a caveat of extended accommodative policy across other tools a shift could force a break outside recent ranges and see the AUD test lows at 0.7320.

With little headline data on the domestic docket all eyes are on the BoJ today as the marker for broader direction.

The New Zealand dollar drifted higher on Monday against a softer Greenback as investors wait for a number of central bank meetings. Japan, US and the UK all meet this week and the outcomes could determine the direction of currencies. The NZD/USD pair closed the Asian session a shade above 68c and touched a high of 0.6834, to close in New York around 0.6825.

On the data front, local economists will be closely watching the release of ANZ Business Confidence. The survey has reported negative confidence for the past nine months, headline business confidence deteriorated further in June and may remain weak in July.

Levels to watch – Support located at 0.6720 and resistance remains located at 0.6860.

The Great British Pound somewhat bucked the negative trend it had been on in overnight trading, treading water above the 1.31 level. Opening this morning at 1.3133, the Sterling posted a shallow intra-day advance that didn’t quite change have the follow through but nevertheless represented an increase on yesterday’s open.

Support for the Pound came from the domestic economic calendar with UK money figures being released at the London open. The report highlighted a five-month high for mortgage approvals, as well as continued expansion of consumer credit growth. Despite the positive overtones the Cable remained subdued as the Bank of England’s Governor Carney’s comments weight on the market. Governor Carney specifically warns that a disorderly Brexit could be problematic. The Sterling was also assisted in its ascent by a softening USD which lost ground to its counterparts across the board. Overall, the Cable enjoyed a slightly appreciation without breaking out to the upside.

The Great British Pound continues to enjoy a slow domestic calendar to start the week with direction being driven by off-shore forces. Risk trends and US Dollar dynamics continue to drive sentiment around the Pair.

Major equity indexes in the United States started the day on a weak note and extended their losses as tech-giants continued to suffer sharp losses on disappointing earnings results. The tech-heavy Nasdaq 100 index dropped as much as 1.5% declining for a third-straight session. Netflix erased nearly 5% to lead the losses in the FAANG (Facebook, Amazon, Apple, Netflix, Google) group.

Looking ahead today on the US data front sees the release of the June Personal Consumption Expenditures (PCE) inflation report along with personal income & expenditure figures for the month of June.

From a technical perspective, the US dollar is weaker against all the major pairs overnight. Currently trading against the Australian Dollar (0.7408), Great British Pound (1.3134) and Japanese Yen (11.03). The EUR/USD pair traded within familiar levels and in a limited intraday range of 1.1720. Against the Euro we continue to expect support to hold on moves approaching 1.1660 while now any upward push will likely meet resistance around 1.1720.

The Euro rose 0.40% to 1.1705 amid broad USD weakness and a strong Swedish GDP number.

Yields in the US spiked less, in relative terms, than other major currencies as the market positioned itself for end of month flows and potential monetary policy changes in Japan and England. The underperformance of US yields weighted on the USD and the EURUSD traded as high as 1.1719.

Support is now standing around the 55-day moving average of 1.1689 while resistance is seen at 1.1720 and then 1.1750.

The loonie continued the strengthening started last week, gaining 0.20% versus the USD with USDCAD closing around 1.3033.

The CAD was supported by broad USD weakness and a 2% increase on WTI prices amid potential supply disruptions.

USDCAD traded to a new monthly low of 1.2995, which will now be acting as short-term support. On the upside, resistance is seen between 1.3090/1.31.