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Australian dollar drops as GDP release disappoints

By OFX

The Australian dollar plummeted in Thursday’s local trading session following the disappointing GDP read for the last quarter of 2018. Opening the morning at 0.7085, any chance of breaking the 71 US cent handle was quickly erased as a 40-pip drop was seen on the Aussie as the Australian economy plunged into a per capita recession for the first time in thirteen years.

The Australian economy grew by just 0.2% in Q4 of last year, declining from the previous read of 0.3%, with the annualised read of 2.3% coming in short of 2.8% in Q3. Speculation of interest rate cuts now look to be increased as markets price in the potential of its first cut by the Reserve Bank of Australia this year since August 2016.

The AUD/USD continued to be weighed down in the afternoon of the Asian trade as eventual lows were seen at 0.7023 overnight. With a global economic slowdown continuing to dampen market expectations, trade balance and retail sales is slated for release today with the latter forecast to see a 0.3% increase for the month of January.

The Australian dollar opens this morning at 0.7030.

After opening just below the 68 US cent handle, the New Zealand Dollar continued its trajectory lower overnight seeing a 0.4% decline. The Global Dairy Trade Index climbed 3.3% from the previous auction spurring the Kiwi higher in early morning trade on Wednesday. It was not able to build on any momentum through local trade as a declining AUD pulled the Kiwi with it to intraday lows of 0.6750 following a disappointing Australian GDP release.

The NZD/USD regained some momentum higher in overnight movements as ADP Non-Farm Employment missed the mark and saw a modest slowdown in job growth.

The New Zealand Dollar opens this morning at 0.6770.

The GBP was volatile yesterday, hitting intraday lows of 1.3131 to open at an intraday high of 1.3177 this morning against the USD. This constant bounce in the currency can be owing to the talks from Bank of England’s Monetary Policy Committee members Cunliffe and Saunders. Key takeaways from Cunliffe’s talk is that Brexit is the biggest risk facing the UK financial sector, and that the level of debt is high. Saunders has backed up that talk showing that with the increased effects from Brexit uncertainties, the economy has recently slowed significantly.

Committee member Tenreyro is due to speak in Glasgow tonight and is expected to give more clues regarding future monetary policy. Halifax Bank of Scotland will also release their House Price Index tonight as well which is expected to have a minor impact on the currency.

The US dollar offered little through trade on Wednesday, trading sideways against major counterparts. Having broken above 97 on Tuesday the Dollar Index steadied just below the two-week high following the release of the Fed’s Beige Book. The Fed’s assessment of local economic conditions showed tariffs and the government shutdown weighed on the domestic economy through the first part of the year, raising questions around key upcoming data events.

Since the Fed turned dovish and moved away from the pre-programmed path to tighter monetary policy, greater focus has been afforded to domestic data sets as analysts and markets look to macroeconomic indicators as markers for future rate hikes. Despite the Dovish turn the USD has maintained a largely bullish outlook as the US bond yield continues to outperform most major counterparts while competing central banks shift back toward an easing bias.

With little headline data on the docket today, our attentions remain with headline trade news ahead of tomorrow labour market data print. A strong read across employment and wage growth will help instil confidence in ongoing US economic upside.

The Euro retreated in overnight trading, hitting a fresh 2-week low at 1.1285 before rebounding and opening this morning above 1.13. Starting the day at 1.1308, the Euro enjoyed a relaxed day on the domestic economic calendar and was also the beneficiary of some softer than expected US data which underwrote the slight improvement.

The EU will now take centre stage for Thursday with the release of the final version of the Q4 GDP and the ECB’s monetary policy and subsequent report. While the ECB is expected to keep rates on hold, market actors are anticipating that policymakers will revise growth and inflation forecasts. The length of such revisions is of keen interest to market pundits.

The Canadian dollar was amongst the worst performing currencies overnight, shedding 0.7% to hit 1.3435 at today’s open. The Bank of Canada led the Loonie lower after dropping their previous hawkish bias in favour of a more neutral tone, thus matching their southern neighbours.

It wasn’t an entirely unexpected result however with traders already weakening the CAD before the Bank of Canada statement, but it certainly confirms the central banks thinking in 2019. The change in rhetoric began with the omission of the Banks warning about rising interest rates over time from its statement. They added to this however by noting the increased uncertainty on timing of future rate increases and that the Q4 economic slowdown was “sharper, more broadly based than forecast”. Adding fuel to the fire was a sharp drop in Canada’s trade balance that came in well below expectations.

Moving into Thursday the Loonie is set to enjoy a quieter day on the domestic calendar with direction to be driven from off-shore.