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Risk-Off mood sees Aussie continue its slide


The Australian dollar’s multi-day decline extended overnight due to dovish comments from RBA deputy governor Debelle coupled with softness in commodity and European equity markets. With markets adopting a risk-off modd, the Aussie dipped below the key 0.72 handle, touching intraday lows of 0.7192 before being bid back up to 0.7225. Continuing its recent trend the AUD/NZD cross also fell to 1.0476, representing it’s lowest level since July 2017.

Recapping yesterday’s retail sales numbers, retailers reported a 0.3% increase in sales for the month of October which was largely in line with market expectations. Whilst sales growth is still not strong by historical standards, analysts were quick to point out the numbers are looking much stronger than they did in the mid-year read. Last night also saw RBA deputy governor deliver a speech in which he stated there is still scope for reductions in the cash rate if economic conditions demanded it and also suggested the bank could deploy QE if a future crisis presented itself. He did reiterate that the next move in the cash rate would likely be up but highlighted tightening credit standards as an area of concern.

Domestic releases are done for the week as the Aussie will now look to Non-Farm payrolls due out of the world’s largest economy tonight. Markets are expecting a rise of 198K after last months blockbuster beat and will also be paying close attention to consumer sentiment data and some Fedspeak on financial stability from board member Brainard.

On the technical front we see minor support for the AUD/USD around the 0.7190 region however expect any moves through this level to test the 0.7130 handle. On the topside, 0.7280 has now become the first line of resistance heading into today’s session.

The New Zealand dollar suffered a sharp decline through trade on Thursday as risk appetite softened with commodity currencies following bonds and equities lower, while safe haven stalwarts found support. The NZD fell through 0.69 and touched intraday lows at 0.6867 as investors flocked toward the JPY and CHF amidst concerns the global economic slowdown is spilling over into the US economy.

The kiwi fell some 0.4% through Thursday while NZD/JPY was one of the days biggest movers down nearly 1%. Despite softness against most major counterparts the NZD pushed through year to date Highs against the AUD breaking 0.9534 to touch 0.9546 before selling pressure forced it lower. Despite the moderation the Kiwi has held on to moves beyond 0.95 and appears well supported when compared to its antipodean counterpart, at least through the short term.

Having bounced off session lows to open at 0.6880 risk appetite continues to drive broader direction as attentions today turn to US macroeconomic data sets for direction into the weekend.

The Great British Pound is stronger this morning when valued against the Greenback reaching a daily high of 1.2811 amid broad dollar's weakness and with Brexit concerns being put aside ahead of the key Parliamentary vote that will take place next Tuesday.

Looking ahead today on the release front and the Bank of England will release its Consumer Inflation Expectations for the upcoming 12 months, previously at 3.0%. The market's reaction to the release is expected to be limited, with all attentions turning on today’s US employment data and associated risk-related factors.

From a technical perspective, the GBP/USD pair is currently trading at 1.2785. We continue to expect support to hold on moves approaching 1.2730 while now any upward push will likely meet resistance around 1.2810.

The US Dollar softened against major counterparts through trade on Thursday facing a marked correction against key safe haven rivals. US Treasury yields followed equities lower amid expectations the FOMC and federal reserves will scale back the pace of rate hikes throughout 2019. Ten year treasury yields touched three month lows as parts of the US yield curve turned negative suggesting the long run up cycle and sustained period of overperformance is coming to an end and a recession may be looming.

While the Fed is still widely expect to raise rates when it meets later this month Fed Futures imply that just one rate hike is forecast for 2019 suggesting the Fed is concerned about the pace of future US economic growth. The recent shift in Fed Rhetoric signals the end in the recent cycle of aggressive monetary policy tightening and a move to more data dependent decision making thus ending a sustained period of relatively low volatility across currency markets. The move back to data dependent monetary policy removes the predictable and cyclical nature of rate hikes that have been the norm across major central banks throughout the last 3-4 years and offers a great deal more uncertainty when assessing possible yield returns moving forward.

With risk still heavily important in driving direction attentions turn to critical wage growth and employment data for direction into the weekend.

The Euro strengthened overnight against the US. Dollar on the back of soft US data releases which came in below the market's expectations. The EUR/USD pair hit a daily high of 1.1412 but retreated to the 1.1380 level. The high for the week was 1.1418.

On the release front today and in the EU we will see the release of Q3 Gross Domestic Product and in the US the Nonfarm Payroll report. The US economy is expected to have added last month 205K new jobs, while the unemployment rate is seen steady at 3.7%. Wages are foreseen up by 3.1% YoY.

From a technical perspective, the EUR/USD pair is currently trading at 1.1379. We continue to expect support to hold on moves approaching 1.1350 while now any upward push will likely meet resistance around 1.1420.

The Canadian dollar took a tumble to fall to a 1 month low of 0.7442 yesterday. The slide in the CAD comes on the back of the escalating trade-war between the United States and China, and the oil prices which have dropped in recent weeks. The Loonie which is backed by commodity crude oil is facing volatility on that end, as discussion of oil production cuts are still being argued.

Two macroeconomic releases that are expected to have a major impact on the dollar will be released just after midnight tonight. The statements will highlight employment change and the unemployment change for the previous month. Both are general indicators of consumer spending, which account for a majority of overall economic activity and are an important signal of economic health for the country.

The Canadian dollar opened at 0.7466 this morning.