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AUD climbs amidst Westpac and RBNZ announcements

By OFX

The Australian Dollar opens at 0.7103 against the United States Dollar this morning, just above support levels at the 71 US cent handle. Westpac Consumer Sentiment released yesterday came back much higher than it’s previous of -4.7%, at 4.3% - providing the initial boost to the AUD. This was further strengthened by the Reserve Bank of New Zealand policy statement, which held a positive tone regarding future economic outlook helping the AUD push higher.

Tomorrow, RBA assistant governor Christopher Kent is expected to speak at a breakfast event in Melbourne where he will be answering audience questions. Expected to have an impact on the AUD, he is responsible for advising RBA board members to decide where to set the nation’s key interest rates. His talk and answers are often used as clues regarding future policy shifts.

The New Zealand Dollar received a huge boost intraday on Wednesday on the back of the RBNZ monetary policy statement. The NZD/USD pair rallied from 0.6730 to 0.6850. They left the cash rate unchanged at 1.75% which was widely expected however, said the next move in the official cash rate “could be up or down.” While the RBNZ was slightly more dovish in its outlook for the official cash rate, it was not as dovish as what markets had expected. Governor Orr added in the press conference that the chance of a rate cut had not increased since the last MPS and said it expected to keep the OCR on hold through until mid-2021 (6 months longer than previously expected).

The pair has eased overnight and back under 68c on the back of a stronger Greenback. Todays sees the releases of monthly FPI data which is unlikely to move the rate.

The Great British Pound opened at 1.2895 against the greenback yesterday and saw initial rallies at the start of the UK session to approach the 1.3000 handle. The initial release of CPI figures for the month of January saw inflation fall to 1.8% y/y and slid below 2.0% for the first time since 2017. The new cap on energy prices in the UK was the main catalyst for the drop and levels of inflation are now below the Bank of England’s target. The news saw little impact on cable despite the figure coming in below expectations with analysts predicting a forecast of 2.0% and dropping from the previous reading of 2.1% in December.

Hearsay rumours by UK’s chief Brexit negotiator of the possibility of further extensions to Brexit deadlines were the main driver of GBP/USD to intraday highs from 1.2880 to 1.2960. Leaked to the media by an ITC correspondent were private comments from Olly Robbins that lawmakers would need to accept an amended Brexit deal or see further deadline delays past March 29th.

Gains were shortly lived as the Sterling tumbled following profit taking and finished 0.3% lower for the day and opens this morning at 1.2845.

The US Dollar is stronger across the board against most major currencies, the Dollar Index which measures the USD’s strength across six major currencies is back above the 97.00 handle sitting at 97.17 at the time of writing. January’s CPI core inflation data was a little stronger than expected rising 0.2 percent from the prior month and 2.2 percent from a year earlier, according to a Labor Department report on Wednesday.

The broader CPI was unchanged from December, below forecasts, while the annual gain of 1.6 percent was the smallest since June 2017. The data suggest inflation remains around the Fed's 2 percent target, with prices getting a lift from steady wage gains.

Oil rose for a second consecutive day, as investors digested a report that showed US crude inventories rising more than expected while a fall in oil imports suggested tightening supplies.

Yesterdays gains were quickly forgotten overnight as the Euro topped out during the Asian session at 1.1341 and continuing its downward momentum against the greenback. Opening the morning at 1.1325, the Euro saw initial weakness as Industrial production slowed down by 0.9% in the euro area for the month of December showing further concerns for recession. Production of capital goods was the main drivers lower with Ireland seeing the largest decreases by country.

Lows overnight were seen at 1.1258 as US inflation levels were supportive for further hikes in 2019 fueling a US Dollar rally. Investors will be keeping an eager eye on the release of GDP figures in Germany overnight as countries around the world continue to downgrade their economic growth forecasts. Analysts are predicting a rise of 0.1% in the fourth quarter of 2018.

From a technical perspective, the EUR/USD pair is currently trading at 1.1265. We continue to expect support to hold on moves approaching 1.1240 while now any upward push will likely meet resistance around 1.1300.

The Canadian Dollar lost momentum yesterday losing it’s almost 1 week high, to open at 0.7541 against the United States Dollar this morning. This drop can be owing to positive sentiment in the ongoing US-China trade war as the likelihood of a ceasefire extension is looking more probably. The Canadian economy has been under pressure due to this trade war as it reduced the demand for Canadian exports.

Statistics Canada will release two data sets just after midnight regarding Manufacturing Sales and New Housing prices. These announcements show the change in total value of sales made by manufacturers and change in selling prices of new homes respectively. As leading indicators of economic health both announcements are expected to have an impact on the CAD.