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Aussie Dollar Holds Ground Despite Risk-off Sentiment

By OFX

The Australian Dollar held its ground overnight despite US-China trade war rhetoric dampening risk sentiment and equity markets in Asia, Europe and the USA all coming under pressure. Risk sentiment suffered the US Justice department indicted 2 Chinese officials for intellectual property theft, taking markets by surprise and seemingly hurting the chances of China convincing the USA by march that it was taking IP theft seriously.

AUD/USD traded between 0.7090 and 0.7150 overnight amidst the risk off sentiment but managed to hold up better than expected as the USD was sold off across the board. AUD/NZD rallied early on Thursday following the disappointing GDP read out of New Zealand however it reversed some of these gains, falling from 1.0555 to 1.0490.

The calendar is now empty for the Aussie until the beginning of next year. It will continue to take its cues from global risk sentiment and commodity prices. On the technical front we see technical supports at the 0.7020 before 0.7000 with topside moves expected to meet resistance approaching 0.7170.

A wild ride for the NZD yesterday saw the domestic unit initially suffer during the Asian session following the weaker than expected New Zealand GDP read. The weak GDP numbers for Q3 were suggestive of weaker growth momentum and pushed the NZD lower across the board, touching lows of 0.6725 against the greenback. Broad based USD weakness saw the NZD/USD rise slightly into this morning’s open with the pair currently changing hands at 0.6777.

This morning sees ANZ consumer confidence numbers for December to round out the year for the NZD. We expect the NZD to continue to take its cues from developments in global risk sentiment and offshore releases with first lines of technical resistance evident at the 0.6790 handle with downside moves expected to catch bid support at 0.6720.

The GBP rallied against the USD during yesterday’s trading session to a one-week high of 1.27034, but tumbled against the EUR amidst little information released by the Bank of England, on the direction of where interest rates are headed. While the bank voted 9-0 to keep the interest rates unchanged at 0.75% and in line with expectation, it provided little guidance on where the outlook.

The UK Office for National Statistics will release their data for Final GBP this evening. This measures the changed in the inflation-adjusted value of all goods and services produced by the economy, and is the broadest measure of economic activity and the primary gauge of the economy’s health. The forecast is expected to stay the same as last quarter’s figure, at 0.6%.

The US Dollar edged lower through trade on Thursday, touching 3-month lows against the Yen while the Euro pushed through 1.14 and tested moves toward 1.15. Equities continued to suffer in the wake of the Fed’s monetary policy decision Wednesday amplifying risk off trade and increasing demand for the haven targets Yen and CHF.

With cracks beginning to appear in recent US outperformance coupled with an increasing demand for certainty markets are looking to haven assets with gold and the Yen expected to benefit through the short term. Ten and two-year yield curves flattened further this week moving closer to an inversion, a clear signal the long run business cycle is nearing the end and suggesting a recession within the US is looming.

Attentions now turn to Core Durable Goods Orders and Q3 GDP data as marker for direction into the weekend. With greater focus now attached to macroeconomic data sets, softer prints could prompt a further USD correction. As markets begin preparing for year end medium term forecasts suggests a USD correction through Q1 may be forthcoming.

The Euro soared in overnight trading, reaching a daily high of 1.1485 before settling at 1.1454 this morning. The impetus for the shift upwards came from the US federal reserve as they surprised the market with a less-dovish statement than expected.

The Greenback was dumped heavily against the Euro as the risk-off tone prevailed despite the far less dovish statement from the Federal Reserve. The Greenbacks declines were further exacerbated by thin volumes ahead of the holiday period. Closer to home, the Bank of England kept rates on hold as it awaits clarity on Brexit, further supporting the Euro. Adding to the good news for the Euro was Swedens Riksbank which hiked its policy rate for the first time in seven years from -0.5% to -0.25%.

Moving into Friday, Germany will release the GFK consumer confidence survey while the US will release the final version of Q3 GDP.

The Canadian dollar enjoyed a day to forget in overnight trading, falling sharply in the wake of weaker oil prices and the deterioration in the outlook for central bank policy. The Loonie opens this morning at 1.3497, more than 60 pips lower than yesterdays reading.

The Canadian Dollar found itself on the losing end of the US Federal Reserves rate policy as it was heavily sold off in the wake of the announcement. Adding to the magnitude of the losses were thin volumes ahead of the holiday season and further falls in oil prices. The WTI Crude fell below $46 and Brent below $55, OPEC will address the concerns today but analysts still suggest the demand side of the equation looks shaky with reports that 2019 will be the slowest pace of growth in eight years. There was some positive news however, with Canada adding 39,000 jobs in November, following successive months of impressive jobs growth.

Moving into Friday the Canadian Dollar has a full economic calendar to digest. Canada is set to release their core retail sales reading, GDP figures and business outlook survey.