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AUD in turmoil as it slides further overnight

By OFX

The Australian Dollar has been declining throughout the week against the United States dollar, to open at 0.7062 this morning. This weakening can be mostly attributed to the USD strengthening overnight as various USD indices are at their highest this year. Further developments have also been made regarding the US-China trade war giving a positive tone that an agreement can be met between the two presidents, also supporting the USD.

Later this morning the Australian Bureau of Statistics will release their data on home loans. Showing the change in number of new loans granted, it is a leading indicator of demand in the housing market. An indicator higher than -2.0% will be good for the AUD. Major bank NAB have also scheduled to release their data on Business Confidence at the same time. This data is based on surveyed businesses and an indicator of economic health. Last month’s data came in at 3, while any figure above 0 indicates improving economic conditions.

The New Zealand Dollar was whittled lower despite very little activity on global foreign exchange markets as the risk off tone subsided slightly ahead of the resumption of US-China trade talks. Within this context the Greenback gained a little ground across the board which saw the Kiwi weaken slightly to open this morning at 0.6734.

With little on the economic calendar to digest, focus shifted to the political sphere with attentions fixed on the on-going trade negotiations. Sentiment was initially dampened after President Trump noted he would not be meeting President Xi before the March 1st deadline. Nevertheless, reports overnight mentioned that Trade Representative Lighthizer and Treasury Secretary Mnuchin will meet Chinese Vice Premier Liu in Beijing to hopefully make progress on the deal before March 1st.

Adding to market optimism were reports that both presidents will likely speak on the phone before the March deadline. Overall, the Greenback strengthened on the news, as did the Kiwi, which has outperformed most of the G10 currencies. Nevertheless, against the USD, the NZD finds itself slightly lower.

Moving into Tuesday the New Zealand Dollar again has little to look forward to on the domestic calendar ahead of an action packed RBNZ Wednesday. Today, direction will again be driven by offshore forces.

Clinging onto 1.2950 on open yesterday, the Great British Pound was hit by disappointing GDP data in the UK. Q4 2018 GDP figures declined by 0.4% on a month on month basis showing its weakest reading in six years as Brexit fears continue to put pressure on both the economy and domestic currency.

Finishing the day 0.6% lower, cable traded to a three-week low of 1.2845 with UK manufacturing production also seeing a weak number of -0.7% m/m with the sector now in recession. The manufacturing of cars and steel products being a major contributor, both declining due to weaker global demand.

Not helping the Sterling was a stronger greenback overnight as the dollar index rose to three-week highs. Brexit uncertainty continues to be a major hinderance to any upside potential on the GBP/USD cross at present with Prime Minister May due to deliver a statement to the House of Commons this evening which has now been brought forward from Wednesday.

This evening Bank of England head Governor Carney is due to speak about the economic outlook and global trade tensions in London this evening as the Sterling opens this morning at 1.2860.

The US Dollar once again grinds higher against most major currencies with the index touching a seven-week high of 97.12. There was no major data due so it seems the Dollar is continuing to benefit from global growth concerns with investors moving towards the safe-haven appeal. Talks in China this week are front and centre for markets many of whom see little prospect of a trade deal.

In other news, most commodities weakened, reflecting the stronger US dollar. Gold is under pressure and fell down to $1,311.70 per ounce. Oil prices edged lower, despite OPEC-led cuts to production.

The Euro is weaker this morning when valued against the Greenback, falling below 1.1300 level, having traded as low as 1.1266 its lowest since Dec. 14. We saw overall strength in the Greenback on Monday as concerns grew that the latest round of U.S.-China talks may not yield a deal between the world’s largest economies.

On the data front there aren’t any relevant macroeconomic releases scheduled today. Looking ahead this week and tomorrow we will see the release of Industrial Production for the month of December. Then on Thursday we will see the release of Q4 Gross Domestic Product for both Germany and the EU. Also on Thursday we will see the release of Q4 EU flash employment data. Finally on Friday we will see the release of EU Trade Balance for the month of December.

From a technical perspective, the EUR/USD pair is currently trading at 1.1275. We continue to expect support to hold on moves approaching 1.1260 while now any upward push will likely meet resistance around 1.1300.

The Canadian dollar has fallen overnight by 0.25% as a stronger greenback was the main contributor for overnight movements. Opening at 1.3268, the greenback moved steadily higher and peaked at 1.3319 with US crude oil prices down sharply by 2.3% to $51 a barrel before recovering this morning to $52.40.

With global economic growth concerns at the forefront of investors minds and central banks continuing to downgrade their forecasts on growth, the Loonie is suspect to weakness as pressure continues to be seen on commodity prices including oil which has slid 30% since October last year.

With little on the horizon domestically this week for the Canadian Dollar, the local currency will take its cues from trade war negotiations as the United States and China resume negotiations between top tier ministers this week.

The USD/CAD swaps hands just above the 1.3300 handle.