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Aussie wobbles as Geo-political tensions escalate and domestic data disappoints

By OFX

The Australian Dollar traded according to the headlines with US-China trade war news appreciably moving the AUD. Unfortunately, the news was fairly negative with the arrest of the Huawei CFO in Canada. With tensions noticeably high between the two superpowers, the Aussie Dollar succumbed and opens this morning at 0.7182.

With little on the economic calendar to drive direction the Aussie took its cues from off-shore sources. The fallout from the Huawei CFO arrest and the almost 5% decline in the S&P500 for the week saw global markets turn decidedly risk-averse. The Aussie was not spared from the sell-off, falling steadily throughout the week.

Adding to the picture was Chinese data released over the weekend that showed the trade surplus in China grew by $44.7 billion. Exports however, increased by only 9.8% and imports declined by a massive 25%. Inflation was also disappointing, down 0.3% in November and leaving the annual reading at 2.2%. The take-away from the report was a noticeable slow down for the Asian giant. The poor economic news from China, coupled with heighted tensions with the US, painted a gloomy picture for the Aussie which found little support over the weekend.

The Australian Dollar starts this week with little on the economic calendar to digest. The market will again turn to off-shore forces for direction.

The NZD dipped lower to fall to a one month low of 0.6849 against the USD earlier this morning. This decline was primarily driven by weakness in the stock market and a lower demand for risk. The downward direction was influenced further as attempts by the US to extradite a Huawei Technologies executive casted doubts on the recent US-China trade truce and heightened concerns it will slow the global economy. The executive is facing allegations that she violated US sanctions against Iran.

In the near future, there is a lack of macroeconomic data available that is expected to have a high impact on the Kiwi. Business NZ will be releasing their data on manufacturing this Friday, which outlines how manufacturers are rating their relative level of business conditions. This is expected to have a medium impact on the NZD, where a figure above the previous 53.5 will be good for the currency.

The Great British Pound fell through trade on Friday, marking a fourth consecutive weekly loss as investors pair positions, pulling back ahead of critical parliamentary Brexit vote. The short-term fate of the Pound hangs on whether or not Teresa May can wrangle a majority vote for her Brexit Deal tomorrow. Early polling suggests the odds are heavily stacked against the incumbent and embattled PM as a deeply divided parliament appears set on rejecting the deal in its current format.

Sterling was down 0.2% Friday touching 1.2750, nearing 18-month lows touched Wednesday as the likely hood of a no-deal Brexit increases. A defeat for May on Tuesday opens the door to a series of varying outcomes that will change the shape of Britain’s exit from the common market with the possibility of a 2nd referendum on membership now on the table. At time of writing most analyst expect some form of exit deal will be negotiated before the end of the year, allowing the GBP to bounce back toward 1.29/1.30 and rally beyond 1.34-1.35 moving into the middle of 2019.

Attentions remain squarely affixed to Tuesday votes as the primary driver of Sterling Direction.

On Friday the U.S. dollar fell against the majority of its rival counterparts on the back of an unimpressive monthly employment report which showed U.S. employers hired fewer workers than forecast in November, 155K, although the unemployment rate remained steady at 3.7% (at near a 49-year low). The result raising concerns that U.S. growth is moderating and the Federal Reserve may stop raising rates sooner than previously thought.

Looking ahead this week and there are no scheduled releases for Monday. On Tuesday we will see the release of Producer Price Index (PPI) for the month of November. On Wednesday we will see the release of Consumer Price Index (CPI) for the month of November. Finally on Friday all eyes will be on the release of core Retail Sales, Industrial Production, and Purchasing Managers' Index (PMI) all for the month of November.

The Greenback today is weaker when valued against the Canadian dollar on the back of higher oil prices and data showing a record increase in domestic jobs bolstered expectations for further interest rate hikes from the Bank of Canada. The CAD/USD is currently trading at 0.7500. The Euro closed the week slightly below the 1.1400 level. Currently trading at EUR/USD 1.1382. Only the Pound Sterling closed the week softer against the Greenback, down 0.2%, as British Prime Minister Theresa May pressed ahead with plans for a parliamentary vote on her Brexit deal despite warnings it could topple her government. The GBP/USD is currently trading at 1.2707.

Friday’s US session saw the Euro rise against the greenback as US employment data showed U.S businesses hired fewer workers in November than markets expected. This saw EUR/USD bounce off lows of 1.1360 to touch intraday highs of 1.1420 before retreating slightly into Monday mornings open where it is currently trading at 1.1390 heading into the week.

With a number of risk events due out of Europe this week, the Euro could be in for some volatile trading. First off the rank on Monday is German trade balance data; markets are expecting a 0.5% rise in exports and a 0.4% rise in imports with analysts pointing to the sharp fall in oil prices as a possible driver of an increased surplus. Following this we have Zew survey results out of Germany and the eurozone before we see Eurozone industrial production numbers on Wednesday which are forecasted to show a 0.3% rise when compared with September.

The key risk event for the Euro is no doubt the European Central Bank policy meeting on Thursday at 12:45 GMT. Markets are expecting the central bank to continue it’s plans in reducing stimulus and announce an end to quantitative easing at the meeting. This is despite the growth rate falling to the lower band of the banks 2018 forecasts. We then have Eurozone PMI numbers out on Friday which will be watched closely as an indicator of activity in the important manufacturing and services sectors.

We see immediate technical resistance at the 1.1400 handle before 1.1421. On the downside we see first lines of support at 1.1321 and 1.1300.

The Canadian Dollar moved between a very tight range on Friday during the Asian and early European session between levels of 1.3370 and 1.3399 against the Greenback. As soon as the Canadian unemployment numbers were released the pair saw a dramatic drop to 1.3253, unemployment dropped to a record low suggesting the labour market remains buoyant despite doubts about the health of the nation’s economy. Employment increased by 94,100 in November and the jobless rate dropped to 5.6 per cent from 5.8 in October.

Looking ahead todays sees the Deputy Governor Timothy Lane Speaking on a panel discussion titled "Implications of FinTech for Financial Inclusion and Stability" in Istanbul. He will have the opportunity to comment on the excellent jobs report published on Friday, which seems much better than the dovish tone of the BOC decision. On the data front the housing sector has seen some wobbles in recent months, after years of expansion. The first housing figure of the week is projected to drop from 206K to 198K in the fresh report for November. Also Building Permits is due out, building consents rose by 0.4% in September after three consecutive months of declines. A return to drops is on the cards for October: -0.2% is forecast.