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Australian dollar steady – testing support at 74 US cents

By OFX

The Australian Dollar saw little change against its U.S. counterpart in domestic trade yesterday as we opened at 0.7425 and drifted lower, trading in a twenty-pip range for the day.

Price action moved lower off the release of the AIG Manufacturing Index which saw a dip from 57.4 to 52. While still in expansion, it showed a slower pace for the month of June and caused the local currency to curtail and test support at US 74 cents.

Movements again overnight were minimal as the Federal Reserve kept interest rates on hold at the benchmark levels of 2.00% with the CME Fedwatch tool showing a 91% chance of an interest rate hike at the next meeting in September and a 67% chance in December.

Eventual lows were seen overnight of 0.7390 before drifting back higher as the AUD looks to test support levels at 0.74 once again today with the release of Australian June trade balance figures. Expectations are that the release will show a surplus of +$900m.

The New Zealand Dollar dipped intraday yesterday against its US counterpart following the release of second-quarter unemployment data. The jobless rate rose to 4.5% which beat expectations of 4.4%. Meanwhile, private sector wage inflation rose 0.6% in the quarter for a 2.1% annual increase which was in line with expectations. The NZD/USD moved from 0.6819 down to 0.6803 following the report and then dragged lower offshore to touch an eventual low 0.6781. Markets are expecting the RBNZ to increase rates in late November, all speculation at this stage as it is dependant still on the economy retaining momentum to push inflation higher.

On the crosses, flat against the AUD and EUR at 0.9170 and 0.5824. We are lower against the JPY at 75.87.

Looking ahead, as tensions once again flare between the US and China with news of US Treasury's Lighthizer is to consider increasing the tariff rate on $200 billion of Chinese goods to 25 percent from 10 percent the Kiwi could come under selling pressure in a risk-off environment.

There is no economic data out locally, markets will tun to the UK where the Bank of England is expected to raise interest rates.

The Great British Pound is marginally lower against its counterpart, the Greenback, as currency movements overnight proved modest. Supported by the widely expected interest rate rise, the Sterling trades near a one-week low ahead of only the second cash rate rise since the global financial crisis. Opening this morning at 1.3125, Cable pivots decidedly to the UK for direction, with all eyes on the Bank of England.

Much of the currency movements overnight were muted as risk appetite again fled the market. President Trump was again the catalyst with the escalation of his tariffs to 25% from 10% on 200b worth of Chinese goods. The market response was limited however, with pundits suggesting this may be a negotiation tactic ahead of a reopening of trade talks between the worlds two biggest economies. Closer to home, the Cable was whittled lower as British factory activity was reported to be slightly below expectations although, again the movements were marginal at best.

The Pound now looks to a packed Thursday for direction with the Bank of England slated to release their Inflation Report, Official Bank Rate and Monetary Policy Summary. While it is widely expected that the BOE will increase the cash rate by 0.25%, Traders will take particular attention to the Policy Summary for any dovish or hawkish statements.

Overnight the Federal Reserve upgraded its assessment of the U.S. economy but decided to skip another interest rate increase for now leaving the cash rate at 2%. However, the committee is widely expected to approve an increase at the September meeting. The statement said the labor market has "continued to strengthen," language consistent with the June meeting. Traders in the futures market are indicating a 91.4 percent chance of a September increase and a 68.2 percent probability for another move in December.

On the US data front today in the US sees Factory Orders (for June) and the ISM NY business conditions index. All attentions will now turn to Friday’s Non-Farm Payroll Report and ISM Non-Manufacturing PMI.

From a technical perspective, the Greenback is neutral against the Pound Sterling, currently trading at 1.3126, as investors remain uncertain about the upcoming Bank of England’s monetary policy meeting today. The USD/JPY pair reached a two-week high of 112.14 yesterday but turned south in early European trade. Currently trading at 111.69. The EUR/USD pair traded in a tight 30 pips' range right below the 1.1700 figure during the first half of the day. The Euro is currently weaker this morning trading at 1.1661.

EURUSD dropped 0.3% to 1.1660 on slightly weaker than expected Manufacturing data out of Europe and broad USD strength following higher US Treasury yields across the curve, although the longer end saw a bigger increase.

Next up is the Bank of England, the Euro has been dropping against the GBP ahead of tonight’s meeting, were the market is expecting a rate hike by the BOE.

From a technical perspective, EURUSD is still hovering around its 55-Day moving average around 1.1685 with resistance seen around 1.17.

The loonie has been holding well lately despite the drop in oil prices and potential unilateral NAFTA deal between the US and Mexico.

Yields in Canada have been trading higher, supporting the CAD, with the 2-year trading at a multi-year high. USDCAD was little changed around 1.30, level that was temporarily broken at 1.2976. Further support is seen at 1.2950 while 1.3050 will now act as short-term resistance.