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Aussie remains above 72c post RBA policy decision

By OFX

It was a rollercoaster ride for the Australian Dollar yesterday thanks to local macroeconomic data released locally. The AUD/USD opened around the 0.7225 level but was quickly sold off to a low of 0.7193 as Retail Sales numbers for December showed it’s biggest decline in twelve months. Sales dropped 0.4% and left the annual growth rate below the long-run average and steady at 2.8%. Meanwhile, trade surplus widened to 3.68B, beating the forecasted rise to 2.3B from the November figure. The uptick in surplus, however, is largely driven by a 6 percent drop in imports. Imports were down 0.9% in the year, the first annual decline in over two years. Exports overall were also weaker in December, falling 1.6%. The annual pace of growth, however, remained firm at 16.2%, reflecting resilience in prices of most commodities.

The Reserve Bank of Australia left the cash rate on hold at 1.5% as expected, in the statement sounded less dovish than expected and maintained a fairly optimistic view on the economy. The RBA indicated that it downgraded its GDP growth forecasts for 2019 from 3.25% previously to around 3% amid falling house prices in Australia and uncertainty over household spending. The AUD/USD pair rallied over 70 pips pushing back through 72c and touching a high of 0.7263.

Looking ahead, RBA Governor Philip Lowe is due to speak at the National Press Club, in Sydney.

The New Zealand Dollar opened yesterday morning at 0.6883 and traded in a tight traded range as liquidity remains light in the market. Both China and New Zealand observes public holidays today as Intraday highs of 0.6906 were seen overnight. ANZ World Commodity Prices lifted 2.1% m/m with dairy and meat prices being the main contributors.

The greenback was too strong overnight to hold onto any gains as the Kiwi slid to lows of 0.6870. Traders positioned themselves ahead of today’s State of the Union Address by President Donald Trump and looks to be the key driver in markets today.

This evening sees the release of the latest dairy products sold at auction as the New Zealand Dollar opens this morning at 0.6890.

The Great British Pound fell through trade on Tuesday, moving back below 1.30 as the undercurrent of Brexit uncertainty forced a break below key short term supports. Having tested 1.31 on Monday the Pound met a wave of selling pressure following a slow down in growth across the services sector. January PMI’s fell forcing employment and new business indices to contract falling below 50 for the first time since the Brexit vote. The poor print signals a slow start to the year, posing downside risks to the growth outlook and highlighting the uncertainty facing key sectors of the British economy

Sterling fell through the 200 day moving average at 1.3037 prompting a further sell off as institutional investor orders triggered forcing the pound below 1.30 and triggering a move toward intraday lows at 1.2928.

With little of note on the domestic docket today, attentions turn to the BoE’s monthly monetary policy meeting. We anticipate the MPC to leave rates on hold, while proffering a broadly non-committal statement, pointing to the vagaries of the current Brexit process and its clouded outcome. With key Parliamentary votes scheduled next week we anticipate the GBP to fluctuate on headline news with upside limited to moves approaching 1.31.

The United States Dollar gained ground overnight as investors positioned themselves ahead of President Donald Trumps State of the Union Address scheduled at 1pm AEST today. The DXY which measures a basket of currencies against the greenback traded higher and through the 96 handle. Market participants are hoping for more positive updates toward the current stalemate between the United States and China trade war negotiations.

Data out of the United States was mixed as Non-Manufacturing PMI showed a slight slowdown in its growth numbers delivering a reading of 56.7 compared to last months print of 58.0. There was little movement on the local currency as the DXY finished 0.3% higher for the day and opens this morning at 96.10

The Euro followed the trend of the week, retreating yet again against its US counterpart to open this morning at 1.1406. The Euro found itself whittled lower as multiple PMI reports from across the Eurozone checked in, despite a poorer reading from the US ISM PMI report.

PMI reports eased further in January, reaching its lowest level since 2014 and undermining the Euro. These leading indicators added fuel to estimates that quarterly eurozone growth is on pace to hit just 0.1% q/q for Q1 19. With the ECB acknowledging the persistent weak data and global uncertainty the ECB is firmly in assessing mode ahead of their March meeting. The market in turn has devalued the euro in light of the further evidence that the Eurozone may be moving towards a recession.

Wednesday looks to be another quiet day on the economic calendar with only President Trump’s state of the Union speech looking to drive markets.

The Canadian dollar extended its downward dip through trade on Tuesday edging marginally lower and testing supports at 0.76 (1.3160) as investors attentions turned to President Trump’s State of the Union address. With little domestic data on hand to drive direction the Loonie succumbed to wider market flows and a broad USD upturn.

As a leading performer through the year to date the CAD has met resistance on moves approaching 0.7650 (1.3068), while a correction in oil prices has prompted profit taking. With risk appetite improving on renewed optimism surrounding trade pressures (led by US and China) market demand for commodity driven units and emerging market currencies has strengthened. The CAD remains largely well supported through the short term as our attentions turn to tonight’s State of the Union address and a hope Trump will proffer guidance on US trade policy and US/China trade talks. Positive rhetoric and signals a deal is nearing completion could help bolster demand for the export driven Canadian dollar, prompting a move to key long term resistance handles at 0.7670 (1.3037).