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Australian dollar rallies to a monthly high

By OFX

The Australian dollar is stronger this morning when valued against the greenback. On Friday on the back of better than expected Chinese inflation figures we saw the Aussie reach a session high of 0.7234 its highest in almost a month.

Looking ahead this week in Australia and it kicks off today with January Consumer Inflation Expectations, previously at 4.0% and the TD Securities Inflation estimate for December, previously at 0.0%. Also today China will publish its December trade data with the focus on imports and exports with Australia and the trade surplus with the US. On Wednesday we will see the release of Westpac Consumer Sentiment.

From a technical perspective, the AUD/USD pair is currently trading at 0.7213. We continue to expect support to hold on moves approaching 0.7190 while now any upward push will likely meet resistance around 0.7250.

The New Zealand Dollar outperformed on Friday, enjoying a sustained period of improved risk appetite. Optimism surrounding US and China trade talks helped bolster market confidence and prompt a move away from traditional risk-based assets. Pushing through 0.68 the NZD touched intraday highs at 0.6837 the Kiwi closed the week as the top performer among G10 currencies advancing 1.5%.

Having suffered a correction amid increasing global uncertainty and heightened US rate expectations the Kiwi struggled to mount any significant upside moves moving into the close of 2018, however easing trade tensions and affirmation of a dovish shift in Fed policy has helped bolster demand for commodity led and emerging market assets. As optimism improves there is scope to suggest the NZD may test a break above 0.70 through the first quarter.

Attentions today turn to Business confidence data wherein a strong print could help bolster expectations for domestic investment. Business confidence has been a drag on the broader economy through recent months and another soft read will continue to weigh on broader GDP and consumer led inflation expectations.

The GBP surprisingly rose against the USD on Friday reaching 1 month highs of 1.2859. This comes despite the crucial Parliament Brexit vote early Wednesday morning, where volatility is likely to be expected. It appears the market is anticipating that PM Theresa May will lose, and as a result the case for this is already being priced in. While the outlook favours the government to lose, it is more of a question of by ‘how much’ rather than ‘whether’. The reaction to the markets will likely depend on the margin of the size, as if it is slim, a possibility for another vote is there.

Bank of England Governor Mark Carney is scheduled to testify Wednesday evening, along with three Financial Policy Committee members. Expected to have a major impact on the currency, Gov. Carney will speak about the Financial Stability Report before the Treasury Select Committee in London. Volatility is often experienced during his speeches as traders attempt to decipher interest rate clues.

The GBP opened at 1.2855 against the USD this morning.

After starting the session on the back foot amid dovish Fedspeak, the USD diverged from its recent losing run to rise 0.2% on Friday amidst the ongoing US government shutdown and optimism around a positive result from US-China Trade negotiations. The sharpest gains came as reports emerged that the PBOC do not want a sharp appreciation in the Yuan.

Fridays consumer prices reflected a 0.1% fall for December, largely in line with expectations and their firs monthly decline in a year. Core inflation, the Fed’s preferred measure, was much steadier, rising 0.2% in the month.

Key risk events ahead for the USD are skewed towards the bank end of the week with December retail sales numbers due out on Thursday and a fresh jobs print out on Friday. Traders will also be watching Wednesdays producer price index read and a number of speeches from the Federal Reserve throughout the week.

The Euro edged lower through trade on Friday failing to capitalise on softness across key US inflation data sets and a shift in market expectations surrounding Fed monetary policy. Having extended beyond 1.1550 on Thursday the Euro met selling pressures and key technical resistance handles that forced the common currency back below 1.15 to touch intraday lows at 1.1453.

Despite sustained a broad USD correction investors remain wary of extending the Euro beyond longer run ranges between 1.1250 and 1.1550. Softness across key macroeconomic indicators and a persistently dovish ECB has clouded market demand for the single currency ensuring profit taking on moves approaching the top end of recent ranges. While markets have relinquished long USD holdings the gap in yields remain and until the gap begins to close, or at the very least signal suggest the gap will close Euro upside beyond 1.17 will be hard one.

Attentions this week turn to ECB president Mario Draghi as he addresses European Parliament. A hawkish undertone could help to break key technical resistance at 1.1570 while a traditionally dovish bias will likely see the Euro test moves back toward 1.14/1.1380.

The Loonie took a backstep on Friday evening as the anticipated inflation reading released in the United States saw the USD/CAD pair finish 0.2% higher to close the week. Despite the greenback advancing, it was the Canadian Dollar that closed the week overall higher for the second consecutive week following the Bank of Canada’s decision to keep interest rates on hold mid-week.

The Loonie took a backstep on Friday evening as the anticipated inflation reading released in the United States saw the USD/CAD pair finish 0.2% higher to close the week. Despite the greenback advancing, it was the Canadian Dollar that closed the week overall higher for the second consecutive week following the Bank of Canada’s decision to keep interest rates on hold mid-week.

Opening the week at 1.3260, domestically on the agenda it is light on till Friday whereby Statistics Canada will release its own set of inflation figures. Most recently lower gasoline prices has put a dampener on CPI as it dropped to 1.7% in the month of November.