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Aussie holds above 0.74

By OFX

The Australian Dollar remained relatively unchanged in overnight trading, opening this morning at 0.7436. The Aussie managed to hold its gains for much of yesterday’s session, only falling below the key 0.74 handle at the close when it touched 0.7388. Despite the setback, commodity currencies were stronger across the board and the Aussie was no exception. The AUD recovered strongly to hold above the key 0.74 handle to start the Thursday session.

Market volatility remained mostly supressed in overnight trading with trade tensions again taking the spotlight. President Trump firstly confirmed that there would be a 25% tariff on $16b worth of Chinese imports implemented on August the 23rd. Initially, markets took the news in its stride as the news was widely expected, however there was a general softening across the board. Commodity currencies then moved higher against its counterparts after stronger than expected Chinese trade data, ultimately leaving the market in a tenuous, risk-off environment.

The other major news to come from the session was from our neighbours across the Tasman. The Kiwi tumbled heavily to open this morning lower against the Aussie. Opening this morning at 1.1073, a high since February this year, the Kiwi fell after their cash rate projection was pushed back by the RBNZ to 2020.

Attentions now turn to Chinese and US CPI and PPI figures for direction.

Ongoing trade war between China and the US is still a major risk being watched by the Reserve Bank of New Zealand and has weighed heavily on risk-sensitive currencies such as the kiwi in recent months. Although the US has not directly targeted New Zealand, the island nation is likely to be affected as global supply chains shift.

The Reserve Bank of New Zealand (RBNZ) this morning kept the official cash rate steady at 1.75 percent. We now expect the RBNZ to keep rates at this level through 2019 and into 2020, longer than initially projected. The RBNZ mentioned that while recent economic growth has moderated, they expect it to pick up pace over the rest of this year and be maintained through 2019.

From a technical perspective, the NZD/USD pair is currently trading at 0.6710, down almost half a U.S. cent after the interest rate decision, from yesterday’s high of 0.6761. We continue to expect support to hold on moves approaching 0.6688 while now any upward push will likely meet resistance around 0.6851.

The Great British Pound continues to be sold off despite Bank of England raising interest rates last week for only the second time since the global financial crisis. Opening yesterday at 1.2940 against the U.S. Dollar, movements were capped higher at 1.2970 into the European session.

Both Credit Agricole and Rabobank overnight suggested that a hard Brexit could depreciate the British Pound potentially a further 10% and Cable dropping to as low as 1.20. This caused the Sterling to buckle under pressure and slip below key technical support of 1.29 for the first time in two years.

GBP/USD intraday lows were seen at 1.2855 and declined to a nine-month low against the Euro of 0.9012.

On the agenda today is the lower tiered data release of RICS House Price Balance as markets focus their attention abroad for the release of United States PPOI and unemployment claims.

The Great British Pound opens this morning at 1.2890.

The US Dollar index has been holding above 95.00 level moving 0.4 percent yesterday between 95.00 and 95.42 as investors assessed the latest trade headlines and their potential impact on the market. On Wednesday, China announced new 25% tariffs on $16bn worth of U.S. goods as a counter measure, the announcement came just a day after the U.S Trade Representative office released a finalised list of $16bn worth in Chinese goods that will be hit with the tariffs. The Chinese Ministry said the 25% charge will include coal, grease, Vaseline, asphalt, plastic products and recyclables.

On the back of this Crude oil has come under some pressure witnessing its worst daily decline since mid-July and breaking the $67.00 psychological barrier. A tariff on imported U.S. crude oil means a drop in demand and with a drop in demand means U.S stock piles will build putting pressure on prices.

Against the major currencies, the Aussie and CAD are the best performers vs the Greenback, AUD/USD has shifted back above 74c buying 0.7435 and the CAD is up around 1.3020. The Yen has strengthened and sitting at 110.93 at the time of writing and the Pound still falling against the worlds reserve hitting a fresh one-year low of 1.2853.

On the data front, in Asia today we see Core Machine Orders out of Japan and PPI and CPI out of China. Out of the US, PPI, Jobless Claims and wholesale inventories.

The Euro maintained a largely stable trading handle throughout Wednesday when compared against the USD, bouncing between intraday lows at 1.1570 and session highs of 1.1627. With little macroeconomic data on hand to drive direction and test recent ranges the most liquid of trading pairs offered little to excite investors, edging only marginally higher to hold above 1.16. Instead the Euro took advantage of broader GBP softness marking its largest one-day appreciation in nearly 3 months, advancing through 0.90 pence for the first time in 9 months.

Broader direction remains heavily influenced by ongoing Brexit negotiations, while trade tensions continue to underpin the Greenback and create/generate uncertainty surrounding the short-term Euro outlook. While well supported on approaches toward 1.15 short term upside remains hard won with resistance on moves approaching 1.17/1.18.

Attentions now turn to US CPI data Friday for macroeconomic direction and guidance in the face of ongoing geopolitical and trade uncertainty.

In what looked as if it would be a continuation of Tuesday’s CAD selloff, the USD/CAD continued its ascent early in the session to touch month to date highs of 1.3117 before retreating to levels nearer to 1.3010. The CAD came under selling pressure earlier in the week as the diplomatic dispute between Canadian and Saudi officials escalated with the Saudi Central bank and pension funds already initiating a sell down of Canadian assets. Given the moves have only had a limited impact on the loonie, especially as oil prices were also soft, indicates the market has determined there will be limited impact on the Canadian economy.

In light of the 100+ pip reversal overnight, new downside support is seen at 1.3000 and then 1.2960 with any upside moves likely to be capped around the 1.3040 handle.