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Aussie dollar recovers after yesterday’s wild session

By OFX

Thursdays session saw the AUD/USD fall to lows below 0.68 as Apple reported downward revisions to its first quarter revenue guidance, citing weakness in the Chinese market which sparked widespread anxiety about global macroeconomic conditions for the year ahead. The moves were exacerbated by lighter liquidity as markets were still returning from the new years break and came during a particularly illiquid time in the Asian session. Traders fled from risk assets towards the safe haven yen and greenback, forcing the AUD lower across the board to touch its lowest levels since 2009.

The Aussie has since recovered against the US dollar, with the AUD/USD pair trading above 0.70 to begin Friday’s Sydney session. Markets are expected to remain volatile to finish out the weak as major pairs will seek to find their equilibrium prices following yesterdays massive swings.

As we have been saying all week, there is no Macroeconomic data to consider this week out of the domestic economy. The Australian dollar will continue to be at the mercy of offshore releases as well as global risk appetite, as was proved yesterday. If the Aussie can continue its recovery and test 0.7020 we could see a run to 0.7070 however on the downside we see initial support at 0.6950 before 0.6880.

The Kiwi dollar is steady this morning when valued against the greenback. The Kiwi reached a 24-hour high yesterday 0.6699 just shy of the 0.6700 level. The NZD/AUD pair is also steady around 0.9550.

Yesterday on the release front NZ dairy prices are off to a strong start for 2019, with gains registered for all the products on offer at the first Global Dairy Trade auction of the year. The Global Dairy Trade (GDT) price index gained by 2.8 per cent. According to the latest available data, New Zealand milk production rose by 2.3 per cent on a milk solids basis in November against November 2017.

From a technical perspective, the NZD/USD pair is currently trading at 0.6688. We continue to expect support to hold on moves approaching 0.6592 while now any upward push will likely meet resistance around 0.6713.

The well reported flash crash yesterday morning which effected markets globally saw the Great British Pound nose-dive against the greenback as low liquidity had investors moving the majority of their positions into Japanese Yen.

The crash caused the Sterling to drop to two-year lows from open of 1.2605 to an intraday low of 1.2375 before pairing all losses in what was a frenetic hour of trading. Market normality was restored heading into the offshore session.

UK Construction PMI dropped to 52.8 for the last month of 2018 as the construction sector saw its growth slowdown to its weakest pace in three months signaling a slowdown in housing and commercial growth in the UK.

GBP/USD climbed to eventual highs overnight of 1.2645 as selling pressure on the greenback in North American trade occurred following a poor reading on the ISM Manufacturing PMI release overnight.

Several data releases are slated for release this evening as cable opens this morning square at 1.2630

Currencies were jittered yesterday morning as a flash crash occurred on markets around the world. A flurry of large moves to start the morning seemed to be triggered by a downgrade in the sales outlook by Apple Inc plummeting 9% in its value as weaker growth in China was to blame.

The USD/JPY cross plummeted to its lowest position since 2016 dropping from 109.00 to 1.0465 within the hour as low liquidity to start the new year and computer algorithms were likely to have exaggerated the moves in what was a frantic morning for traders.

Eventually markets stabilised mid-morning with the long positions maintained in the JPY as the USD/JPY dropped 1.2% over the past 24 hours to 107.50 on open this morning. Liquidity should improve today as Japan comes online from their New Year holidays. The DXY fared somewhat better dropping a mere 0.4%.

The Euro was slightly stronger against the U.S. dollar with the EUR/USD pair hit a daily high of 1.1410 mid-US afternoon. On the release front yesterday we saw ISM Manufacturing Index, which plunged in December to 54.1 from 59.3 in November, its lowest reading since August 2016, when it registered 50.5, according to the official release.

Looking ahead today and we will see the release of Consumer Price Index (CPI) across EU Member States. Monthly core inflation to remain steady at 1.00%. On Friday we will also see the release of Producer Price Index (PPI) and Purchasing Managers' Index (PMI).

From a technical perspective, the EUR/USD pair is currently trading at 1.1392. We continue to expect support to hold on moves approaching 1.1380 while now any upward push will likely meet resistance around 1.1430.

The Loonie tested two-week highs against the greenback overnight as oil prices rose and the US dollar was sold off after Apple’s revised guidance spooked markets. Oil prices surprisingly rose 1.8% despite volatile currency and stock market moves as well as growing concerns of an economic slowdown in 2019, allowing the CAD to rise 0.4% against the greenback to trade at 1.3530.

The US dollar selloff was also compounded by the narrowing of Canada and USA credit spreads, with the difference between the Canadian and USA 10 year narrowing by 3.6 basis points, representing its narrowest level since November.

Friday sees the release of Canada’s employment report for the month of December. The jobs numbers will be leaned on as a leading indicator of what’s in store for 2019 with markets expecting a slight uptick in unemployment figures from 5.6% to 5.7%.