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Aussie falls through key 0.70 handle

By OFX

A tough day for the Aussie yesterday saw the domestic unit fall below the key 0.70 handle to touch intraday lows of 0.6983, representing its lowest level since January 2016. After trading near to 0.7050 on Wednesday morning, AUD/USD is currently changing hands significantly lower, oscillating around the 0.695.

The weakness is largely due to a positive start to 2019 for the greenback which has been catching bids due to its safe haven characteristics relative to riskier European currencies. We also saw a PBoC publication released yesterday which painted a dreary picture of the economic performance of the world’s second largest economy. The pace of the slowdown in Chinese growth is seen as increasing, with fourth quarter GDP growth possibly lower than 6.5%. Given the Australian economy’s reliance on China as its biggest trading partner, the AUD suffered heavy losses on the news.

As we discussed yesterday, there is nothing of note on the domestic data docket for the Aussie. We expect it to continue to take its cues from USD strength and global risk appetite relating to the ongoing US-China trade situation. Given the recent downside moves, we see new topside resistance on moves approaching 0.7000 whilst downside moves are likely to catch support approaching 0.6950.

The New Zealand Dollar finds itself significantly lower than yesterday’s open after poorer than expected Chinese data conspired to undermine the Kiwi. Opening this morning at 0.6652, the NZD looks to be another victim of increased risk aversion as investors again retreat amidst concerns over the global economic slowdown.

New Zealand enjoyed a second new years day to start off the year and had little in the way of domestic data to digest. Nevertheless, the Asian session proved to be eventful with the Chinese PMI being of particular note. The PMI reading was well below expectations at 47.1 which also signalled a contraction in China’s manufacturing industry. Markets almost immediately took the news poorly as the reading added fuel to concerns about the global economic slowdown and triggering a sell—off. Risk assets, such as equities and commodity currencies bore the brunt of investor concerns with the Kiwi being no exception to the sell-off.

Moving into the back end of the week all eyes remain fixed on the US as PMI figures and employment data are set for release.

The Great British Pound erased all gains overnight after its bullish run up to the 1.28 handle to end 2018. Opening yesterday morning at 1.2735, cable lost over 150 points during the European trading period as a bullish manufacturing PMI report failed to provide any relief for the ailing Pound.

An intraday low of 1.2580 was seen as investors slowly come back into the market as low liquidity over the holiday period continues. Broad US Dollar strength was the main theme in currency markets since the start of 2019 as participants are eagerly awaiting this months Brexit vote on the week of January 14th.

On the technical front the GBP/USD dipped below the 50-day moving average with longer term support at December ’18 lows of 1.2480. The Great British Pound opens this morning under pressure at 1.2560 ahead of the release of Construction PMI readings this evening.

The US Dollar Index (DXY) rebounded in overnight trading, reaching 96.80. The 0.82% increase was mainly due to the Greenbacks status as a safe-haven currency as risk sentiment again retreated despite the lower volumes and public holidays around the world.

Chinese PMI data appears to be the catalyst for the increase in risk aversion as the result was well below expectations. The reading of 49.7 was also under the all-important 50, signalling an industry contraction. The news undermined any positivity the market might have had to start off 2019 with the news simply exacerbating global growth concerns which saw investors flee to safety, including the USD. The Greenback found itself in high demand throughout the first trading day of the year and surged upwards against most currency pairs.

Moving into the close of the week, the US also has their chance to report PMI numbers as well as employment figures on Friday.

The Euro is slightly weaker today when valued against the U.S. dollar, albeit the currency pair EUR/USD reached an overnight high of 1.1496, before settling down around 1.1325. The Euro fell on the back of weak manufacturing data from Spain, France, Italy, and Germany, which sent the euro 1.1 percent lower, on pace for its worst day against the U.S. dollar in more than six months.

Looking ahead today the EU will release minor Money figures and Spanish Unemployment, with the attention shifting to US data. Today the U.S will release weekly unemployment claims ahead of Friday's Nonfarm Payroll report.

From a technical perspective, the EUR/USD pair is currently trading at 1.1345. We continue to expect support to hold on moves approaching 1.1310 while now any upward push will likely meet resistance around 1.1385.

The Canadian dollar strengthened against its U.S. counterpart on Wednesday on the back of higher oil prices which offset a slowdown in manufacturing growth. The IHS Markit Canada Manufacturing Purchasing Managers’ index fell to a seasonally adjusted 53.6 in December, its lowest in nearly two years, from 54.9 in November, as production growth faltered and export orders stagnated.

Looking ahead today and there are no scheduled releases. All attentions turn to the employment report for December which is due on Friday.

From a technical perspective, the USD/CAD pair is currently trading at 1.3591. We continue to expect support to hold on moves approaching 1.3576 while now any upward push will likely meet resistance around 1.3593.