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AUD Range bound as USD depreciation stalls

By OFX

The Australian Dollar offered little through trade on Tuesday bouncing amid a tight 30-point range having failed to extend Monday’s upward push and recovery following last weeks flash crash. Fluctuating between session lows at 0.7117 and daily highs at 0.7150 the AUD remained largely range bound as investors appeared wary of extending gains in the absence of risk demand. A marginal narrowing of the trade surplus in December did little to sway AUD valuations intraday and broader focus remains affixed to US/China trade talks. Optimism surrounding the latest discussions has improved as key US officials suggest an agreement on trade that both sides “could live with” may be reached.

Having recouped all of the losses suffered in last weeks technical depreciation AUD upside remains controlled by US rate expectations and the ongoing trade narrative. Short term gains will remain hard won and it is unlikely we will see significant AUD upside until a formal resolution to trade tensions is reached, despite increasing Chinese Stimulus to forestall a hard landing.

Attentions now turn to US FOMC meeting minutes for direction through trade on Wednesday ahead of domestic Retail Sales data Thursday.

The New Zealand dollar is slightly weaker this morning when valued against the Greenback despite news that US-China trade negotiations were progressing well. Despite last week’s rise in global demand for riskier trade-correlated currencies the kiwi has been in a tight trading range.

On the release front today all eyes will be on the monthly ANZ Commodity Price Index. Investors are still hoping for progress on trade talks between the US and China.

From a technical perspective, the NZD/USD pair is currently trading at 0.6720. We continue to expect support to hold on moves approaching 0.6700 while now any upward push will likely meet resistance around 0.6760. The New Zealand dollar overnight rose against the Australian dollar overnight reaching 1.0630.

Tuesday saw the Pound come under pressure as mounting tensions surrounding the pending Brexit vote continued to weigh on the domestic unit. GBP/USD initially traded above the 1.2800 handle amid speculation of an extension of article 50, news which was later denied by Prime Minister May who is still seeking guarantees from the European Union before submitting her deal to parliament. This saw the pair fall to 1.2710 in European trading.

In further bad news for Theresa may, European ministers have again repeated their position that no more concessions will be granted by the union, with UK MP’s also voting 303-296 In favor of limiting the tax powers of the government in the event of a hard Brexit. Both of which present significant challenges to Prime Minister May.

We head into this morning’s Asian session with the GBP/USD trading around the 1.2710 level. Downside supports are seen at 1.2655 and 1.2620 with any GBP upside expected to come into selling pressure at levels nearer to 1.2745 and 1.2780 respectively.

The US dollar index rebounded through trade on Tuesday, pushing off the 3 month lows touched on Monday as investors adjust expectations regarding European Monetary Policy Stimulus and positive indications from key US officials that a trade deal with China could be reached bolstered optimism. The Euro fell back through 1.1450 following a fall in German Industrial output. While the depreciation was modest it highlights a broader concern surrounding the pace and timing of ECB policy change and suggests the ECB will be forced into a prolonged weaning period if it is to maintain even moderate growth targets. The prospect of the ECB maintaining its current policy setting through the summer helped fuel demand for the USD as investors extend the timeline of expectation wherein the gap between US and European benchmark interest rates will grow.

Despite advancing three tenths of a percent through Tuesday and pushing back toward 96 the dollar index remains under pressure. Domestic political concerns coupled with a rebalancing of interest rate expectations has forced a correction in the value of the world’s base currency and seen a near 2% decline in the USD since mid- December. Investors have scrambled to adjust valuations amidst expectations the global growth slowdown will begin trickling through to the broader US economy.

Attentions now shift toward the FOMC meeting minutes for clarification and guidance surrounding Fed policy making while ongoing trade war discussion shape a wider appetite for risk.

Although lower today compared to yesterday’s trading session, the EUR has been holding its own despite weak results in recent Eurozone data. Both the Germain Industrial Production and French Trade Balance data releases yesterday both came lower than their forecasts. While the data did come back weaker than expected, the resilience in the EUR has been mostly due to weakness in the USD as investors have been lowering their expectations over further interest rate increases.

Later this evening, more Eurozone data will be released such as the German Trade Balance, Italian Monthly Unemployment Rate and Eurozone Unemployment rate. All expected to have an impact on the EUR depending on the actual figure release compared to its forecast. Despite the recent torrent of Eurozone data releases, most investor’s expectation is on the European Central Bank’s minutes meeting release tomorrow night to provide the biggest insight in the economic condition of the Eurozone.

The EUR opened against the USD at 1.1438 this morning.

The Canadian Dollar marginally extended its gains overnight, opening this morning at 1.3274 despite an uneventful trading session. There was some news to digest overnight however with the release of Canada’s Trade Balance figures. The result however failed to surprise the market with the result a near exact hit on analysts’ expectations.

Moving into Wednesday, investors look to position themselves ahead of the first monetary policy statement of the year in Canada with pundits also eyeing a rate hike to 2% from 1.75%. With the imminent news on the horizon, attentions will be fixed on the Bank of Canada to drive direction.