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Iron Ore surge not enough to break AUD’S range bound stupor

By OFX

The Australian Dollar offered little to excite traders on Tuesday maintaining short term ranges ahead of critical data sets and the Fed’s policy announcement. Despite a sustained uptick in iron ore prices the AUD failed to break outside of the mid 0.71’s and bounced between intraday lows at 0.7140 and session highs at 0.7175. Investors appeared content to sit on the sidelines, skeptical the Iron Ore rally will run through the Chinese New Year break and reluctant to extend or sell down holdings ahead of today’s Q4 CPI print and tonight’s FOMC rate announcement.

After a largely quiet start to the week today’s docket could prove the catalyst that awakens the AUD and forces a move outside recent ranges. Should Q4 CPI print below consensus forecasts at 0.3%-0.4% and 1.5%-1.6% year on year the pressure will mount on the RBA to shift away from the current neutral policy setting and entertain an easing bias in a bid to kick start the economy. Price pressures remain well outside the boards 2% - 3% target band and persistent softness coupled with the banks hiking rates outside the policy cycle may force the RBA’s hand and prompt a rate cut in a bid to ease the burden on household debt.

Following the domestic data dump attentions will turn to the Fed policy announcement and brief rate statement. There is no expectations the FOMC will raise rates outside the 2.25%-2.5% setting and we expect the market response to be largely muted, however a dovish tweak to the statement could prompt some USD softness as investors scale back expectations for policy change.

The NZD repeated it’s efforts from yesterday by jumping from an intraday low of 0.68214 to a high of 0.68596, before climbing back down again to open at 0.68299 against the USD this morning. The climb can be attributed to the positive Trade Balance data released by the Statistic New Zealand yesterday morning. Showing the difference in value between imported and exported goods, it came back higher than it’s forecast of 225M, at 264M. This was a positive for the currency as export demand and currency demand are directly linked, and foreigners must buy the domestic currency to pay for the nations exports.

In terms of releases in the near future, Statistics New Zealand will release their employment change and unemployment rate data late next week. Expected to have a major impact on the Kiwi, these releases showcase the change in number of employed people and percentage of work force that is unemployed.

The Pound Sterling is weaker this morning when valued against the Greenback. The Pound Sterling fell sharply after British lawmakers voted against a bid in parliament to prevent a potentially disorderly no-deal Brexit. The Sterling reached an overnight high of 1.3199 before the Coopers Amendment vote. One of the most relevant votes, the Cooper´s amendment was defeated 298 to 321, resulting in the GBP/USD pair falling a fresh weekly low of 1.3056.

Looking ahead today on the release front and the only scheduled release monthly Mortgage Approvals. All attentions will turn to the ongoing Brexit negotiations.

From a technical perspective, The GBP/USD pair is currently trading at 1.3064. We continue to expect support top hold on moves approaching 1.3015 while now any upward push will likely meet resistance around 1.3100.

The United States Dollar remains relatively unchanged, opening this morning at 95.82 on the US Dollar Index, a slight rise of 0.1%.

The Greenback remained steady ahead of some key events later in the week. US-China trade talks are set to kick off tonight, the FOMC have their scheduled meeting this evening with, payroll data set for release on Friday and corporate earnings reports continue to filter through. Overall, with key risks on the horizon, currency movements remained modest.

Immediate attentions remain with the Fed and with the FOMC tipped to maintain the current setting the US Dollar is expected to remain largely unchanged with the focus shifting to the accompanying statement and any dovish shift. Investors will be keenly attuned to Powell’s commentary amid concerns the recent government shutdown will have wider reaching impacts on first quarter growth prospects. Global markets will also keep a close eye on any news from the on-going US-China trade talks.

The Euro saw little movement on Tuesday as investors focused on further voting by the UK Parliament and the Great British Pound. Opening at 1.4225 against the greenback, the pair saw a 0.1% gain after initially seeing intraday lows of 1.1411.

The EUR/GBP saw 6-week highs overnight, soaring to 0.8750 and gains of 0.8% as MP’s voted for Prime Minister May to seek new terms with the EU and reject a no-deal Brexit. With the March 29th deadline on the horizon, both EUR and GBP stand likely to see further volatility over the coming weeks.

A number of data releases are scheduled in Germany and France as market participants look firmly towards this evenings Federal Open Market Committee meeting in the United States. It is expected no changes will be made to its current interest rate levels with a more dovish rhetoric in their statement. The Euro opens this morning at 1.1430.

On Tuesday the Canadian dollar was trading slightly lower after initially seeing small gains in offshore markets overnight. Opening at 1.3255 against the Greenback, the Loonie shifted higher as WTI crude oil futures rebounded during the North American session as heavy buying saw highs of nearly $54 a barrel.

Movement back in the greenback was seen ahead of this evenings Federal Reserve interest rate decision as the USD/CAD saw intraday highs of 1.3285.

Settling eventually lower in early morning trade, there is no macroeconomic data scheduled for release this evening as investors look towards the release of Novembers Canadian GDP data on Thursday.

The USD/CAD opens this morning at 1.3270.