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Aussie jumps on trade balance surplus for September

By OFX

The Australian dollar was the second best performing currency overnight rising to a 24-hour high of 0.7212 against the U.S dollar. We saw the Aussie rise on broad US dollar weakness, a continued rally in equities, and solid data from Australia and China.

On the data front yesterday Australian trade balance surplus for the month of September was up $3.017 billion in seasonally adjusted terms, the largest surplus in over a year-and-a-half. August surplus was revised to $2.342B from a previous estimate of $1.604B. In China yesterday Chinese Caixin Manufacturing PMI for October came in at 50.1, surpassing September 50.0 and much better than the contraction reading expected of 49.9. Looking ahead today and we will see the release of monthly Retail Sales figures at 11.30am AEDT with forecast is for sales growth of 0.3%. We will also see the release of Australian Producer Price Index (PPI).

From a technical perspective, the AUD/USD pair is currently trading at 0.7200. We continue to expect support to hold on moves approaching 0.7170 while now any upward push will likely meet resistance around 0.7250.

The New Zealand dollar is stronger this morning when valued against the Greenback, up more than 2% overnight, reaching a high of 0.6661. The New Zealand dollar was the best performing currency overnight rising to the highest level since late September. The USD has moved sharply lower across the board over the past 24 hours on the back of Trump’s upbeat comments on China.

On the data front today its very quiet with no scheduled releases. All eyes tonight will be on the release of US ISM Manufacturing PMI.

From a technical perspective, the NZD/USD pair is currently trading at 0.6651. We continue to expect support to hold on moves approaching 0.6600 while now any upward push will likely meet resistance around 0.6680.

The Pound continued its ascent against the greenback on Thursday, rising nearly 250 pips to trade above the key 1.3000 handle. It began its climb during the Asian session, following reports from news agencies that British Prime Minister Theresa may had struck a deal with the European Union on the key area of financial services. GBP/USD did surrender some of these gains initially, with UK manufacturing PMI numbers for October coming in lower than Septembers read however after the Bank of England’s monetary policy meeting, the pound led the USD selloff.

The November inflation report didn’t deliver much of note, with the central bank’s communication rooted in Brexit uncertainty and ‘what if’ scenarios. The BOE did vote unanimously to keep the cash rate unchanged at 75 basis points which was widely expected by markets, however the central bank’s view that the current slowdown was only transitory was interpreted as being relatively hawkish. There were also modest upward revisions to growth and inflation forecasts but the key take way for Sterling traders was that a rate hike was likely coming, although it would be conditional on a favorable Brexit.

Looking forward, in the UK we have October construction PMI’s for October which are expected to be slightly lower while the key risk event for global markets will be the non-farm payrolls read out of the USA. In a week in which our key technical levels of consideration for GBP/USD have been consistently revised upwards in line with a rising pound, we now see downside supports at 1.2935 and 1.2900 and expect any upside to meet resistance approaching 1.3045 and 1.3090.

The US Dollar fell through trade on Thursday giving up much of the weeks earlier upside as investors looked to alternate assets and the economy’s upbeat outlook moderated on news manufacturing activity slowed in October. The ISM manufacturing index fell to a one and half year low, raising concerns the ongoing trade tiff with China is beginning to weigh on US manufacturing output. Having rallied two percent throughout October and touching 16 month highs on Wednesday the dollar index fell through 97 to mark new one week lows at 96.27 overnight.

Profit taking and month end rebalancing saw the dollar correct against the Euro, while Stirling rallied on upbeat interest rate expectations and the AUD surged just under two percent on stronger trade data and optimism surrounding US/China trade tensions.

Attentions now turn to headline Non-farm payroll data and wage growth reports for direction into the end of the week. Indications ongoing labour market strength will drive income improvements is bolstering expectations for a strong average hourly earnings print. An upbeat read will add support to recent improvements in consumer confidence and spending and add to the domestic strength narrative.

The Euro has rose sharply when valued against the worlds reserve currency breaking through the 1.14 handle stopping the Greenback in its tracks. A UK newspaper reported that Theresa May had struck a deal with Brussels that would give UK financial services companies continued access to European markets after Brexit. Markets reacted positively with the Euro gaining traction however, officials quickly denied that any agreement had been met and the Euro was capped at 1.1420.

Looking ahead tonight sees the release of German import process and Eurozone Manufacturing PMI.

Technical levels to watch, immediate resistance sitting at 1.1430 followed by 1.1465, on the flip side, support levels at 1.1400 and 1.1375.

The Canadian dollar advanced against its southern counterpart on Thursday , taking advantage of broader US dollar weakness and renewed appetite for risk. Having touched seven week lows through trade on Wednesday the Loonie advanced on reports US/China trade tensions were easing and China was set to employ robust stimulus plans to maintain growth, driving demand for commodities and a rally in oil prices.

While still exposed to broader global flows attentions turn to key labour marker and trade balance data for direction into the weekend.