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Aussie Dollar at two-year lows after Strong US data

By OFX

A tough session for the Aussie dollar on Wednesday, threatening to record new multi-year lows against the greenback and falling against most of the major crosses. The catalyst for the price action was the release of strong US macroeconomic data which caused a spike in US treasury yields and propelled the greenback higher. The AUD and NZD were rendered the worst performers amongst their G10 peers in the day, both falling 1.2%.

A snapshot of the Aussie crosses this morning, the AUD is currently buying 1.0907 NZD, 81.36 JPY and the AUD/EUR is currently changing hands at 0.6190.

The AUD/USD is currently changing hands at 0.7102 heading into Thursday’s Sydney session featuring a light economic calendar in Asia. We do have a notable domestic release due at 11:30 in the form of trade data from October where economists are looking for a surplus of 1.4billion.

It’s worth noting we would likely need to see a large surprise in either direction for it to have a meaningful impact on the Aussie dollar. From a technical perspective, AUD/USD is well supported at 0.7085 with any topside moves likely to meet resistance at 0.7170 and 0.7200 respectively.

The New Zealand Dollar opens nearly one cent lower against the worlds reserve currency as strong US data triggers a selling spree of G10 currencies. The NZD/USD opened on Wednesday around the 0.6590 level and you can pretty much draw a straight line down on the chart through the Asian, European and North American session where the Kiwi closed the day at 0.6510.

Markets ignored local data - ANZ Commodity Price index, which dropped for the fourth consecutive month down 1.8% in September pushing annual growth further into negative territory, at -3.0% year-on-year.

The main highlight overnight was September ISM non-manufacturing data index rose from 58.5 in August to 61.6 in September, the highest since 1997. There was broad-based strength in the detail and suggests that there continues to be solid underlying momentum in the US services sector.

The move triggered a sharp selloff in US Treasury yields with the 10y rate climbing to its highest level in 7 years while the 30-year tenor ascended above 3.30% for the first time in four years. Adding to USD strength was U.S. ADP payrolls data reporting private sector employers added 230,000 jobs in September, well above economists' expectations. Economists had expected the ADP nonfarm payrolls report to show a gain of 187,000 jobs.

Looking ahead, there are no local data releases and the multi-year lows of 0.6501, set last month, are now within close reach.

The Great British Pound saw slight gains initially during local hours following Theresa May’s conservative party conference speech that Britain’s future is full of promise post Brexit. During the PM’s speech, the Sterling rallied to a daily high of 1.3020 as optimism was boosted in hopes for a decent Brexit agreement for the motherland.

At the start of the UK trading session we saw further increases in business activity for the service sector, once again maintaining growth despite easing slightly from an August reading of 54.3.

The Cable was hit early this morning as the greenback gathered momentum against G10 currencies. Several FOMC members in the United States came out in support for interest rate rises to remain as planned. In particular Federal Reserve Chairman Jerome Powell suggested they may raise rates past “Neutral” but they are a “long way” from being at such neutral point.

From its initial highs following Prime Minister May’s speech, GBP/USD went through the 1.30 handle for the second time this week, seeing new lows of 1.2930.

The Calendar is light on for the rest of the week domestically as attentions turned to a number of leading indicators out of the United States to close the week.

The US dollar rallied through trade on Wednesday following commentary from Fed Chair Jerome Powell. Powell suggested the U.S economy was continuing to grow at a rapid pace and signs were “remarkably positive”, intimating the Fed will continue to raise interest rates as planned. A series of hawkish Fed commentary has helped fuel support in the week since the Fed opted to increase interest rates for the 3rd time this calendar year, driving the Greenback to fresh six week highs.

The US dollar continues to outperform when compared with major against major counterparts as domestic economic strength offers a stark contrast to broader Global underperformance. The Eurozone, UK, Japan and other larger economies both developed and emerging continue to show signs of a material slowdown while the US continues to perform at or above market expectation, evidenced by a 21 year high in Services sector activity through September.

Attentions now turn to Friday’s labour market print, with particular emphasis directed to Average hourly earnings and a sign ongoing labour market strength is directly impacting wage growth.

The Euro broke key technical supports through trade on Wednesday falling below 1.15 to touch intraday lows at 1.1471. Renewed US dollar support on the back of sustained FOMC and Federal Reserve hawkish commentary coupled with escalating concerns surrounding Italy’s debt, fiscal future and ongoing relationship with the Eurozone have forced a persistent downward correction and heightened market nervousness.

Having broken 1.15 markets will be keenly attuned to any consolidation in the downward correction. A sustained move below 1.15 could signal a deeper depreciation is evident and see the combined unit move nearer 2018 lows and 1.1340.

Attentions remains squarely fixed on ongoing Italian economic and political developments for immediate short term direction with broader guidance stemming from the burgeoning gap between US and Eurozone growth.

The Canadian Dollar retreated in overnight trading to start Thursday at 0.7768. In the absence of any domestic data, the Loonie looked to its counterpart south of the border for direction. The Greenback enjoyed a strong showing to close out Wednesday with a number of announcements that bolstered the worlds reserve currency.

The Greenback was well supported on Wednesday with a number of releases surprising the market. Initially the ISM non-manufacturing report increased to 61.6, it’s highest level since 1997. The employment report that followed also beat expectations, raising expectations for the payroll report due out tomorrow. The strong greenback pushed back against the Loonies recent surge and left the Canadian Dollar on the back foot.

Against the Aussie, the CAD broke more ground to touch 1.0931 as the Aussie retreated heavily across the board.

Moving into Thursday the Loonie is set to enjoy some early PMI figures before a full calendar on Friday.