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Aussie climbs due to softening Greenback

By OFX

The Australian Dollar continued its good run into Thursday, forcing its way slightly higher against its US counterpart to open this morning at 0.7260. The impetus for the movement was mostly derived from off-shore as the risk-on sentiment continued. The Greenback softened across the board after the trade tariffs were announced, supporting the Aussie in its recovery.

The Aussie was also helped along by the release of an internal RBA report, outlining that the AUD Trade-weighted Index (TWI) could rise in a widespread trade war as Australia may prove to be more resilient to changing global trade flows.

Commodity markets also saw the AUD well bought during Wednesday as the risk sentiment shifted. Metal markets ground their way higher which also saw demand for the Aussie increase. China also remains dedicated to opening up their local markets and improve trade with key countries.

Moving into Thursday, the Australian Dollar is set to enjoy a quiet day on the economic calendar and will find momentum from off-shore sources.

The New Zealand Dollar is stronger this morning when valued against the U.S. Dollar as the Kiwi continue to show signs of recovery. Overnight, the NZD reached a fresh high for the month of 0.6622 and has only peeled off a little from that level. Yesterday New Zealand’s current account balance was a $2.7 billion deficit in the June 2018 quarter, $484 million smaller than the March 2018 quarter deficit. The annual current account deficit increased to $9.5 billion for the year ended June 2018 (3.3% of GDP), up from the $7.1 billion deficit for the June 2017 year (2.6% of GDP).

On the data front today in New Zealand all eyes will be on the quarterly Gross Domestic Product (GDP) release at 8.45am (AEST). After slowing to a more than one-year low of 0.5% quarter-on-quarter in the first three months, some pick-up is expected in the June quarter.

From a technical perspective, the NZD/USD pair is currently trading at 0.6604. We continue to expect support to hold on moves approaching 0.6560 while now any upward push will likely meet resistance around 0.6630.

In the UK, we saw the release of inflation figures which surprised to the upside. CPI rose from 2.5% to 2.7% in August and core inflation was also above expectations at 2.1%. The larger-than-expected pickup could reflect some one-off factors, but is likely above the Bank of England’s expectations which now placed the BoE under the spotlight. This takes the consumer price index even further away from the 2% target of the Bank of England. The Bank of England (BoE) has already raised its interest rate twice inside of the last year, to 0.75%, in order to combat rising levels of inflation and return the consumer price index to the 2% target.

The GBP/USD initially rallied on the back of the news touching a 10-week high of 1.3212 however, quickly lost all gains as headlines in the UK suggested that Prime Minister May is to reject the EU’s offer on the Irish border. An official from PM May’s office confirmed that the UK can’t accept any Brexit offer from the EU that treats Northern Ireland as a separate customs territory. The pair is currently changing hands at 1.3140

Looking ahead the UK is to report on retail sales.

On the technical front, we see initial support at 1.3095 followed by 1.3050, on the upside, resistance lies at 1.3170 and 1.3210.

The US Dollar Index (DXY) see-sawed yesterday moving from highs 94.73 to lows of 94.32, reports of emerging markets taking the lead with JPMorgan's Emerging Market Local Government Bond exchange-traded fund received $169 million in inflows on Tuesday, the highest inflow since June 2017 kept the lid of any moves back up towards the 95 handle.

US housing starts rose in August more than markets has expected which was boosted by a jump in multifamily construction. This is a positive sign for the housing market which has underperformed the broader economy amid rising interest rates for home loans. Housing starts rose 9.2 percent to a seasonally adjusted annual rate of 1.282 million units in August, the Commerce Department said on Wednesday. Analysts polled by Reuters had expected an annual rate of 1.235 million units. Meanwhile, the number Privately-owned housing units authorized by building permits in August fell 5.7 percent to a rate of 1.229 million units.

US treasury yields moved higher as too did oil to USD 71.15 a barrel. Gold also higher currently sitting at 1203/oz.

Looking ahead the U.S. is to release reports on Jobless Claims, Manufacturing activity in the Philadelphia region and existing home sales.

The Euro is slightly stronger when valued against the Greenback as worries over a trade row between China and the United States eased. The euro was 0.14 percent higher against the greenback. Yesterday we saw the EU release July´s Current Account, which recorded a surplus of €21.3 billion, compared with a surplus of €23.8 billion in June and Construction Output for the same month, which beat expectations, up by 0.3% MoM and 2.6% YoY.

On the data front in the EU today we will see the release of Consumer Confidence for the month of August which consists of a Survey of about 2,300 consumers in Eurozone countries which asks respondents to rate the relative level of past and future economic conditions.

From a technical perspective, the EUR/USD pair is currently trading at 1.1669. We continue to expect support to hold on moves approaching 1.1660 while now any upward push will likely meet resistance around 1.1730.

The Canadian Dollar rallied to 3-week highs against the greenback overnight as markets grew optimistic that a new deal to renew the NAFTA trade pact would be agreed before the deadline of October 1. With the CAD gaining 0.4% on the day, the USD/CAD was pushed down to 1.2923 (77.38 US cents) and also managed to touch lows of 1.2911 – its lowest level since august 30.

The Loonie was also aided by the continuation of recent strength in the price of oil as crude futures finished the day 1.8% higher due to supply uncertainty out of Iran. As we have been seeing all week, traders will be looking to Fridays CPI and retail sales numbers due out of the domestic economy whilst in the interim the USD/CAD is likely to continue to take it’s cues from commodity prices, risk sentiment and Thursdays US employment data.

1.2900 remains a key level of downside support for the USD/CAD with any topside moves likely to meet with resistance at 1.3000 before 1.3055.