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Aussie continues slide ahead of retail sales

By OFX

The Aussie dollar was again amongst the worst performing currencies on the day on Thursday as global equities fell sharply and rumors of Chinese industrial espionage ensured trade tensions remained front of mind for investors. AUD/USD went as low as 0.7066 (lowest since Feb 2016) as risk appetite retreated, largely driven by the surge in US treasury yields and the subsequent pricing of riskier assets. On the trade war front, US Vice presidency pence accused Chinese security agencies of stealing US technology including military blueprints.

The fall in the AUD/USD represented a 0.4% decline on the day whilst the AUD/NZD cross largely traded sideways, oscillating around the 1.0900 level amid the deterioration in risk appetite. Thursday was light on the data front as we head into a packed Friday session. We see August retail sales out of the domestic economy with markets anticipating a 0.3% increase following July’s flat read. The key global risk event for the day is the non-farm payrolls due out of the worlds largest economy; markets are pricing an increase of 184K with the unemployment rate expected to retreat from 3.9% to 3.8%.

If the USD remains elevated, the next technical support is 0.7025 on the downside whilst any topside moves are expected to meet resistance at 0.7144 before the key psychological level at 0.7200.

The New Zealand Dollar has fallen to its lowest level in more than two-years against the Greenback on the backdrop of hawkish comments from Fed Chairman Jerome Powell bolstering expectations of an interest rate hike in December. The NZD/USD was dragged lower on Wednesday night on the back of upbeat US data and has continued to fall as the Fed look towards a possible rise in December. The NZD/USD touched a low 0.6474, a level not witnessed since Jan 2016.

The local calendar is once again non-existent, markets will turn their attention to this evenings US Non-Farm payroll numbers and the official Unemployment rate. US non-farm payrolls are expected to rise by 185k and the unemployment rate is seen falling to 3.8% from 3.9%.

On the technical front, we see support sitting at 0.6445 followed by 0.6400. On the up side, resistance sits 0.6520.

After reaching a floor of 1.2920 for the Great British Pound overnight, movements were positive following Prime Minister Theresa May being backed by Ireland over her border proposals. May in her speech at Conservative Party Conference in Birmingham overnight said she was committed to securing a deal that is positive for the local economy.

Sterling saw a gradual rally higher during the European session, pushing once again through the 1.30 handle to reach intraday highs of 1.3035 despite a better than expected unemployment claims in the United States.

This evening sees the release of Halifax HPI figures which measures the price of homes financed by HBOS. A raft of data out of the United States including Non-Farm employment change is likely to influence the GBP/USD cross and determine whether the cable can maintain levels above support at the 1.30 handle.

The Great British Pound opens this morning at 1.3025.

The US dollars advance stalled through trade on Thursday as investors appeared to take stock of Wednesday’s push through key technical resistance handles, consolidating positions ahead of Friday’s jobs report. Having driven through 11 month highs the dollar moved marginally lower as markets evaluate the impact of a rout on global government bonds amid speculation and uncertainty across emerging markets, Europe and China.

The USD dollar continues to outperform as strong domestic growth and a hawkish central bank paint a positive picture moving through the latter half of 2018 and onward into 2019. A stark contrast to broader global uncertainty and measured macroeconomic policy outlooks. While an argument can be made for a widespread USD correction the strains of emerging markets should continue to fuel demand for the worlds base currency while the potential burgeoning gap in central bank interest rates ensures the Dollar remains an attractive carry option when compared against g10 counterparts.

Attentions now turn to todays’ jobs and wage growth print. Particular focus will be afforded to the Average Hourly Earnings report for a broader inflationary outlook. This evenings print will be critical in guiding short term direction with a strong read supporting recent indications wages are rising and offers support to the Fed’s recent hawkish pitch.

The Euro edged higher through trade on Thursday staving off a consolidated push below support at 1.15 and edging back above this key technical handle. Having touched intraday lows at 1.1463 the 19-nation combined unit advanced on news Italy would review its deficit targets and reduce debt through the next three years.

Touching intraday highs at 1.1535 the Euro opens this morning marginally lower but still comfortably above supports at 1.1512. Attentions now turn to US employment data for direction and guidance into the weekend while Italian political developments ensures headline risk continues to drive short term volatility. We continue to watch moves around 1.15 as a consolidated break and a weekly close below this target and yesterdays low could signal a broader downward correction.

The Loonie was hit from a number of fronts in overnight trading, recording a decline of 50 pips on a daily basis. Opening this morning at 0.7736 against its US counterpart, the Canadian Dollar felt the effects of a strengthening Greenback, softening oil prices and poorer PMI figures.

Kicking things off on the domestic front, Canada released the Richard Ivey School of Business’ PMI survey which showed a steep, negative discrepancy against the expected result. A leading indicator of economic health, the PMI figure came in as barely expansionary at 50.4 against an expected 62.3.

The CAD was also unsupported in the commodity markets with a sharp fall witnessed in crude oil prices. West Texas Intermediate had rallied to highest level in nearly four years yesterday, touching $76.9/Barrell to ultimately reverse course and fall $2 on the day.

South of the border, the Federal Reserve added fuel to the fire with a decidedly hawkish comment from the Fed Chair Powell. Noting that rates were still “accommodative”, Powell added that there was really no reason to think that the current expansionary cycle could not continue effectively indefinitely, a thought not shared by the market. The market did react to the hawkish comments however and the USD rose accordingly as the likelihood of further rate hikes in the near future become more probable.

Moving into Friday, Canada looks to employment rate readings at home and in the US for direction.