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Australian Dollar outperforms on U.S. Equity rebound

By OFX

The Aussie dollar performed strongly overnight, rising from intraday lows of 0.7051 to touch weekly highs of 0.7120 before retreating slightly to settle around 0.7102 heading into Sydney morning. This is despite weakness in key commodity prices, with oil and copper falling amid further US-China trade tensions. The local unit also fared well against the crosses, with AUD/EUR rising from 0.6192 to 0.6261 following weaker than expected GDP numbers out of the Eurozone. The AUD/NZD also rose modestly from 1.0820 to 1.0840 as the NZD also demonstrated firmness against a backdrop of a rising greenback.

A busy day ahead for the Aussie with Q1 CPI due out at 11:30am Sydney time. Markets are expecting underlying inflationary to show 0.3% and 1.9% on quarterly and yearly metrics. As we know, the CPI is a core input for the Reserve Bank’s monetary policy outlook so expect any deviations from market expectations result in volatility in the Aussie.

Next off the block is Chinese PMI surveys for October which are due at 12pm Sydney time although market consensus is for little change despite the holiday period to begin October. AUD/EUR traders will also be keeping an eye on Wednesday night’s Eurozone CPI data with markets expecting an uptick from Septembers 1.1% yearly read.

We expect any further upside moves in the AUD/USD to meet technical resistance on approach to the 0.7150 level ahead of 0.7200. The first level representing the 50 day moving average and the later a key psychological level and October high. On the downside, we see the pair as being relatively well supported at the October 29th low of 0.7045 whilst any breaks below this could look to test the key psychological support evident at 0.7000.

The Kiwi, along with its Aussie counterpart, outperformed overnight as US equities rebounded and commodity prices retreated amidst a volatile and cautious environment. In positive trade related news, in an interview with Fox News, President Trump raised the possibility of a “great deal” with china following on from yesterday’s Bloomberg report which indicated Trump was prepared to go ahead with tariffs on all Chinese imports if talks at the G20 summit next month fail to reach any agreement.

NZD/USD is up 0.5% to open this morning at 0.6550 and also moved higher against all the crosses except the AUD/NZD where it shed 20 pips. NZD/EUR rose to 0.5775 as weaker than expected GDP numbers forced the cross lower. NZD/GBP also lifted to 0.5160 as Ratings agency Standard & Poor indicated elevated Brexit risks would begin feeding into their ratings, going as far as predicting that a no deal Brexit would lead to a minor recession in the UK economy.

We have Australian CPI on the docket today which will be of interest to AUD/NZD traders especially. ANZ business survey is also due whilst overnight we are graced with EUR CPI data. Key technical levels to consider for the NZD/USD are 0.6460 on the downside and 0.6620 on the topside.

The pound was the biggest underperformer on Tuesday, falling from 1.2810 to 1.2696, representing a 0.7% depreciation and its lowest level since mid-august. The risk of a no deal Brexit continues to hurt the domestic unit, with the overnight moves coming as ratings agency Standard & Poor noting overnight that the elevated risk of a no deal Brexit had accelerated enough to warrant it being considered in their ratings outlook for the UK economy. Markets were spooked by the agency forecasting a ‘modest recession’ if a no-deal Brexit came to fruition.

Tuesday’s weaker than expected GDP print out of the Eurozone was not enough for the Sterling to find support against the EUR, as the EUR/GBP cross rose from 0.8868 to touch intraday highs of 0.8938 before retreating slightly to consolidate around the 0.8925 handle. A strong performance from the Aussie dollar also saw AUD/GBP rise nearly 100 pips, touching highs of 0.5597.

As we have been alluding to all week, pound traders will be turning their attention to Thursday’s bank of England meeting. Whilst the central bank is expected to maintain their current monetary policy stance by keeping the cash rate on hold, the accompanying statement will be closely watched for any detail as to necessary conditions for a policy tightening scenario.

On the technical front, near term GBP/USD supports are evident it’s 2018 low of 1.2660 with any topside moves expected to meet resistance on approach to 1.2750.

The US Dollar rallied through trade on Tuesday enjoying a sustained period of support as solid US macroeconomic indicators help foster broader confidence in the world’s base currency. Consumer Confidence rose to an 18 year high in October, spurred by improving labour market conditions and gradual wage increases. The positive print supports Monday’s uptick in consumer spending and suggest near term consumer driven growth can continue through the short term. Advancing 4 tenths of a percent the Dollar index pushed through 97 to touch session highs at 97.02.

While we have seen the pace of the USD advance slow somewhat through the past month the underlying strength of the US economy when compared with its peers, the outlook for tighter monetary policy and the ongoing safe haven demand driven by emerging market concerns continues to add weight to a narrative of sustained USD upside. Of course we acknowledge there are risks to this outlook with the ill-effects of a protracted trade war and political uncertainty ahead of the November midterms weighing on future growth prospects. However, for now, with year end rebalancing only adding further support to the greenback we expect the USD will at least sustain current levels.

Attentions turn to ADP non-farm payroll numbers as a marker and snapshot of Friday’s NFP print.

The Euro depreciated through trade on Tuesday falling through 1.1350 amid ongoing US strength, lingering Italian fiscal woes and a softening growth outlook. Preliminary 3rd quarter GDP data failed to meet market expectations and offers a stark contrast to the robust growth enjoyed within the US. The Eurozone grew at just 0.2% between July and September, raising questions as to whether the ECB can begin raising interest rates in the Summer of 2019.

Touching intraday lows at 1.1351 the Euro continues to struggle in its bid to break outside broader ranges between 1.1330 and 1.1550.

Attentions now turn to inflation estimates as the headline item on the macroeconomic docket as another key marker guiding expectations for ECB policy.

The Loonie has consolidated overnight, trading between 1.31 and 1.3150 overnight against the Greenback. Movements were positive initially for the greenback as CB consumer confidence pushed the currency pair higher after an increase again for the month of October as business and labor markets improved.

The Canadian Dollar rallied higher after Bank of Canada Stephen Poloz was bullish in his remarks overnight as he said that the central bank will continue to hike interest rates to pull inflation back from recent highs of 3% in July.

Crude oil did not favours for the Loonie as it declined more than 1% overnight to $66 a barrel as price action remains volatile on increased supply in Russia and Saudi Arabia.

The USD/CAD opens this morning at 1.3110 as investors look towards the release of Canadian GDP figures this evening.