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Aussie fails to hold above 0.72 despite better than expected GDP expansion

By OFX

The Australian Dollar finds itself in familiar territory this morning, flirting with the 0.72 level. Opening this morning at 0.7192, the Aussie was well supported for much of the trading day with Q2 GDP surprising the market. Ultimately however, the almost vertical incline at the time of the announcement was whittled away to be a footnote in the broader narrative.

Second quarter GDP dominated proceedings for much of the domestic session with a posting of 0.9% against the expected 0.7% expansion, ultimately recording a 3.4% increase for the year to June. The Aussie climbed almost immediately by approximately 40 points to test 0.7210 but couldn’t breach the level. In the end however, the market took the news with a grain of salt and quickly unwound the Aussies gains, flatlining to as low as 0.7148 at the European open.

Globally, emerging markets were the big winners of the day with a rising wave of positive risk-sentiment forcing the USD lower across a number of emerging market and commodity currencies. The Aussie also benefitted from this, although it was limited, with a slow, gradual rise to where we open this morning at 0.7192.

Moving forward into Thursday, the Aussie turns to its Trade Balance figures for some insight as well as keeps a close eye on US PMI and Non-Farm Employment changes.

Having spent most it’s time under the 0.6550 level during local time on Wednesday, the New Zealand Dollar opens this morning higher at 0.6590. Yesterday we saw the release of the ANZ Commodity Price Index which reported a drop of 1.1% month on month for August which was its third consecutive monthly decline. The index is down 0.5% year on year and reports show that of the 17 commodities in the ANZ's index, seven fell, four were unchanged and six lifted. The data had little impact on the Kiwi and despite touching a near 30-month low the Kiwi has managed to recoup some losses on the back of a broad-based USD weakness.

Looking ahead, the local docket is light and therefore the Kiwi will likely takes its direction from offshore markets, tonight sees US ADP Non-Farm Employment Change, always a key piece of data that takes a look at employment growth.

On the technical front, we see support sitting at 0.6530 and 0.6500 with resistance up at 0.6600 followed by 0.6660. The Great British Pound has had quite the rollercoaster ride against the Greenback on the Wednesday having moved from lows of 1.2785 to highs of 1.2982 all in the space of 1-hour making it its biggest jump of 2018. The main catalyst for the move was from Bloomberg reports of the UK and Germany willing to drop key Brexit demands, the report said “the British and German governments have abandoned key Brexit demands, potentially easing the path for the EU and UK to strike a deal”. The significant shift in positions could make an agreement easier to achieve which was well received by the Sterling.

The Great British Pound has had quite the rollercoaster ride against the Greenback on the Wednesday having moved from lows of 1.2785 to highs of 1.2982 all in the space of 1-hour making it its biggest jump of 2018. The main catalyst for the move was from Bloomberg reports of the UK and Germany willing to drop key Brexit demands, the report said “the British and German governments have abandoned key Brexit demands, potentially easing the path for the EU and UK to strike a deal”. The significant shift in positions could make an agreement easier to achieve which was well received by the Sterling.

Looking ahead, the local calendar is light and therefore investors will look for further clues on Brexit negotiations and offshore for direction.

On the technical front, for the GBP/USD pair we see initial support around 1.2940 followed by 1.2835. Resistance can be seen up at 1.2910 followed by 1.3000.

Much of this week has been about the prospect of the US implementing new tariffs on $200 billion worth of Chinese imports by the end of the week. Yesterday we saw the release of U.S. Trade Balance data and despite the imposition of tariffs in July, the US trade deficit increased to $50.1 billion, a 9.6% increase from the previous month. The U.S. trade deficit increased to a five-month high in July as exports of soybeans and civilian aircraft declined and imports hit a record high, suggesting that trade could be a drag on economic growth in the third quarter.

Looking ahead today and the macroeconomic focus will be on US employment figures, the country will release the ADP employment Change for August, and Revised Unit Labor Costs for the quarter.

The Euro has been locked in a tight trading range for much of the week as trade uncertainty dominated the headlines. Concerns with Brexit, the US and EU trade dispute and the US and China trade war all weighed on the market with volumes and trading activity proving thin. The momentum has shifted slightly however, with the Euro appreciated significantly during the Wednesday session. Opening this morning at 1.1631 against its US counterpart, the Euro shrugged off much of the concerns on the back of positive headlines.

Domestically the day was dominated by the headlines with reports that Germany is ready to accept a less detailed agreement on the UK’s future economic and trade ties in a bid to get a divorce deal done. Germany later refuted the report, outlining that their position remains unchanged however the market did rally 0.3%. Economic news was also a bit of a mixed bag with PMI suffering downward revisions and retail sales also falling.

Against this backdrop, the Fibre found further support from the recovery in emerging markets. Risk-sentiment globally shifted positively to riskier assets and currencies with the Euro also finding support from the rising tide. While marginal at best, the Euro does find itself well supporting going into Thursday.

Moving into Thursday, the Euro looks to US non-farm employment and US PMI for direction. Traders will also be keeping a close eye on the headlines.

The Bank of Canada held interest rates steady on Wednesday as expected and reiterated that while more hikes would be needed to keep inflation on target. The overnight interest rate remains at 1.50 percent. The Bank of Canada has raised rates four times since July 2017 in response to a recovering economy. CPI inflation moved up to 3 per cent in July. This was higher than expected, in large part because of a jump in the airfare component of the consumer price index.

Looking ahead today and the macroeconomic calendar is fairly light with the only release Building Permits for the month of August with forecast of a lift of 1.1% from the previous month. On Friday all eyes will be on the Unemployment Rate decision which is expected to rise from 5.8% to 5.9%.