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Aussie unable to hold on and fall back under 72c

By OFX

The Australian Dollar descended against a stronger Greenback on Friday and we saw the pair dragged back under the 0.7200 level. The U.S Dollar index rose thanks to a lift in investor sentiment on hopes of progress on US-Chinese trade tensions. A news report that China had offered to reduce its trade surplus with the US to zero by 2024 was welcomed by financial market participants. AUD/USD moved from levels around 0.7203 to 0.7166 and is currently trading at around 0.7159 at the time of writing.

Looking ahead, locally we see the release of HIA New Home Sales. Investor will also be closely watching China as they are set to release fourth quarter growth, as well as figures on investment and industrial production

On the technical front, support sits at 0.7150 followed by 0.7120. On the up side, resistance can be seen at 0.7200 and 0.7240.

The New Zealand dollar edged lower into the close on Friday edging back below 0.6750, almost a full cent lower than its weekly high. Trade optimism helped drive a USD recovery and forced the Kiwi back toward technical supports.

The NZD has struggled to mount any significant upward momentum through the last 2 weeks as market demand for risk continues to ebb and flow on broader global trade and performance concerns. With little of note on the domestic docket through trade on Monday and Tuesday our immediate focus shifts to a raft of Chinese data points. Sustained softness could compound last weeks poor December Trade Balance print and underscore the broader narrative of a Chinese Economic slowdown dampening demand for the commodity led NZD ahead of Wednesday CPI print.

Analyst expect Wednesday Q4 inflation read to slip below broader expectations as headline inflation will likely fall short of the RBNZ 2% midpoint. A soft read may prompt the RBNZ to consider a move away from neutral and bring forward a rate cut in a bid to stimulate activity and price pressures in an otherwise stagnant economic environment.

While risk demand continues to struggle in mounting momentum the NZD will likely meet resistance on moves approaching 0.68/0.6850 with supports in play at 0.6710 and 0.6650.

Brexit continued to dominate Sterling sentiment last week and looks set to continue its run in the headlines. The Pound see-sawed for much of last week, first being slashed to below 1.27 before rebounding to 1.3 thereafter after a crushing, parliamentary defeat on Theresa Mays deal. Ultimately however, the Great British Pound settled on Friday to open this morning at 1.2857, still around 100 pips higher than last Monday.

Although all Brexit related content is speculation at the moment, the media have identified a Norway type divorce as a 50% chance of occurring, which would also be the most welcome scenario for British Business’ and the Sterling. Beyond speculation however, the market is watching and waiting for any new Brexit headlines.

The domestic calendar also held a few gremlins unfortunately for the Pound with UK inflation decelerating in line with market expectations to 2.1% y/y in December while retail sales and core sales fell -0.9% and -1.3% m/m. Ultimately, the Pound found little support from the data.

Moving into the start of a new week, the Sterling again looks to the headlines for any new Brexit headlines as well as Chinese GDP data for direction.

The USD rose against the AUD on Friday, before diving to open at 1.3927 this morning even amongst the continued US government shutdown. The strength in the Greenback was fueled by rising Treasury yields and positive data from releases on Friday and Saturday. The Philly Fed Manufacturing index came in at a high 17.0 against its forecasted rate of 9.7 and is a leading indicator of economic health where anything above 0.0 indicates improving conditions. Several FOMC members have also spoken about the economic outlook, where Fed member Quarles has stated that the US economy data is very strong, and Williams doesn’t see worrying signs of inflation pressure.

The two main factors going forward that are expected to have a major macroeconomic impact on the USD is further proceedings of the USD-China trade war, and the Chinese 4th quarter GDP release. US President Trump has stated on the weekend that progress has been made with China, although driving a point that tariffs will not be lifted on imports from the Asian country. The Chinese data will also have an impact on the Dollar as less than expected numbers will put a risk-off sentiment on the table, with the Dollar expected to extend its gains against the AUD.

The Euro was under pressure all week and closed 0.85% lower against the worlds reserve currency, having opened last Monday at 1.1457 the pair drifted lower slowly as the week progressed and closed at 1.1361 on Friday. The Euro remained on the back foot as weak German data prevailed and growing concerns over growth prospects for the eurozone. Industrial production posted its sharpest decline in more than four years and the German wholesale price Index was also sharply lower. Friday saw the release of the eurozone current account surplus which narrowed to EUR 20.3 billion, down from EUR 23.0 billion. This was well off the estimate of EUR 24.1 billion.

This week sees a raft of eurozone macroeconomic data starting today with German PPI. November saw a 0.1% rise its weakest gain since March and the markets are bracing for a 0.1% decline in December.

On the technical front, support sits at 1.1300 and resistance up at 1.1434.

The Canadian dollar bounced off 9 day lows on Friday, edging higher into the weekly close on the back of renewed trade optimism. Softening oil prices forced the Loonie toward year to date lows early before rumours the US treasury department was considering lifting tariffs on Chinese exports helps alleviate trace centric tensions, bolstering the commodity led unit.

While the CAD has outperformed its G10 peers to start the year we expect gains to moderate through the near term. Canada’s economy has softened through recent months leading many analysts to downplay expectations for RBC activity through the first quarter this year. Many investors see the RBC leaving rates on hold at least until April as oil prices weigh on broader price pressures and the pace of growth across the labour market slows.

With little of note on Monday’s economic docket attentions turn to a raft of Chinese Data points as key markers to broader global economic health and optimism ahead of December inflation data Friday. Softness across all indicators could force the CAD lower as markets continue to extend expectations for monetary policy adjustment.