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AUD fails to correct as Lira stabilises.

By OFX

The Australian dollar continued its march lower through trade on Tuesday, plagued by ongoing concerns surrounding the state of the Turkish Lira. Investors demand for haven assets increased amid fears the collapse will have a run on effect across emerging markets and European Banks exposed to the embattled Turkish economy. Despite the Lira stabilizing following a government pledge to support the currency the AUD plunged through support at 0.7270 to touch intraday lows at 0.7222 as markets ramped up dollar holdings driving the Greenback to 13-month highs.

Since breaking key technical supports on Monday, the AUD appears vulnerable to further corrections with little stopping a consolidated move through 0.7230 and 0.7170. The recent leg down suggests we are entering new short-term ranges having enjoyed a consolidated period between 0.73 and 0.76. While Iron Ore remains under pressure, the Trade War rages on and the Yield differential continues to widen there is little scope for a wholesale AUD upswing in the short term. With support on moves approaching 0.7230 and 0.7170 attentions now turn to today’s quarterly wage price index print. A soft read will dispel any notion the RBA will hike rates in H1 next year and only compound recent downside moves.

The New Zealand Dollar opens this morning relatively unchanged, currently trading at 0.6574. It wasn’t always a flat day for the Kiwi which did see a notable appreciation against the Greenback. Touching daily highs of 0.66, the Kiwi unwound those gains quickly to ultimately find support at current levels and end up where it began the day.

With a mostly benign economic calendar to contend with the New Zealand Dollar again found itself being driven by off-shore forces. The lead up to a number of Chinese data releases saw demand in the oversold Kiwi increase and appreciate slightly. Unfortunately for ‘risk-on’ currencies such as the Aussie and Kiwi, the news came in slightly below expectations. Ultimately, the Kiwi fared well in the broad market sell off and now sits at 1.1014 against its cross Tasman rival the Aussie. From there it was the same old story, with the USD strengthening across the broad and whittling down the Kiwi.

Without too much to drive the Kiwi domestically, attentions now turn to fresh headlines on the on-going Turkey situation for direction. Traders will also keep close eye on a slew of US figures slated for release later in the day.

The Pound Sterling hovered above the 1.2750 handle throughout Asian trade on Tuesday, as we saw the European markets open and a few UK data releases the Cable touched a high of 1.2826. Interesting statistic I was reading this morning that officially just one in 25 Britons are now unemployed which is the lowest rate since winter of 1974-1975 - a 43 year low. The jobless rate stood at 4% where analysts were expecting it stay at 4.2% and helps to understand why the Bank of England raised the country’s interest rates. With the BoE expecting the unemployment rate to fall to 3.9% the Banks’s Governor has signalled further hikes will be needed to return inflation back to the 2% target.

However the move was short-lived as additional details revealed that annual wage growth slowed to a nine-month low of 2.4% below forecasts of 2.5%. The GBP/USD rate dropped down to 1.2707.

Looking ahead, today we see the release of CPI and PPI. Markets are expecting a slight uptick to 2.5% on CPI and a 0.1% drop in PPI.

The US Dollar index saw further upside overnight after reaching new 14-month highs as the DXY reached 96.80, up 0.3% and breaking through resistance with clear room to advance towards 100.

Dollar Strength continues to be the main theme in the market as banks in the European zone are concerned with their exposure to the Turkish Lira with Spanish banks owed approximately $83bn by Turkish borrowers. EUR/USD continues to be sold off in droves, dropping through 1.1400 support levels to an overnight low of 1.1335 against the US Dollar with next targets at 1.12.

Domestically, United States Import prices for the month of July showed a rise of 0.1%, while small business optimism was near survey highs in the latest release of the NFIB Small Business Index as a net 23% seasonally adjusted owners planned on creating new jobs for the country.

Looking ahead we have Retail Sales released this evening in the United States for the month of July with the expectation of a 0.1% rise with consumer spending expected to remain strong despite inflationary pressures.

The Euro continued it’s slide overnight despite strong domestic data and a rebound in the Turkish Lira. EUR/USD broke through key supports at 1.1350, falling from 1.1425 to touch its lowest levels since July 2017 as it failed to keep pace with broad based USD strength. With European equities flat, focus was concentrated on Q2 eurozone GDP which came in above expectations at 0.4%. Although this is an encouraging signal of stable Eurozone growth in light of the weak Q1 read, it wasn’t enough to drive up demand for the Euro as the persistent greenback found further support and drove the EUR/USD lower.

With the strengthening greenback front of mind for traders, markets will be watching US July Retail Sales due out at 10:30pm Sydney time as a catalyst of the near-term direction in the EUR/USD. Overnight movements now see resistance at 1.1365 and 1.1432 with downside supports evident at 1.1300.

The Australian dollar is currently buying 0.6382 Euro with the NZD/EUR changing hands at 0.5796 in this morning’s trade.

The Canadian Dollar found support through trade on Tuesday rallying back through 0.7650 as the Turkish Lira stabilised following reports the government would underpin the currency. Having suffered heavily at the hands of a wide spread risk appetite sell off earlier this week the loonie benefited from a consolidation in broader positions as investors took stock and attentions shifted back to Friday’s strong labour market print.

Having moved past the initial shock of the Turkish collapse investors focus returned to stronger macroeconomic indicators and an increased likelihood the RBC will raise rates three times this year. While NAFTW negotiations continue to plague broad based upside, a deal appears nearer following a administration change in Mexico and a broad based assurance Mexico will seek a Tri-lateral agreement.

With little of note on the macroeconomic calendar through Wednesday the CAD will find support and direction in broader risk trends ahead of a key CPI inflation print Friday. A strong read will lend support to calls for a 3rd RBC rate hike.