Aussie steady in face of USD surge
Monday 21 May, 2018
Daily Currency UpdateThe Australian dollar offered little through trade on Friday maintaining the mid-week recovery and holding above 0.75 U.S cents. The AUD bounced about amid a 30 point range touching intraday lows at 0.7494 while falling short of pushing through resistance at 0.7530 having touched 0.7529.
Risk appetite waned into the weekly close and weighed not only on US equities but commodities and broader yields while the Euro crashed through 5-month lows sending the USD to year to date highs. Despite broader selling pressures the AUD found support in commentary from US Treasury Secretary Steven Mnuchin, who confirmed “we’re putting the trade war on hold” stemming fears global growth will unravel further in the face of sweeping trade taxes. While the response was muted, hinting at a deeper uncertainty within the market, the comments were enough to prop up the AUD and encouraged optimism and a 20-point bounce on open.
Attentions this week turn to commentary from RBA Governor Lowe on Wednesday while the FOMC meeting minutes Wednesday and commentary from Fed Chari Powell Friday will steer direction through the latter half of the week. With broader ranges intact and volatility easing we expect the AUD will hold between 0.7430 and 0.7580 though the short term.
Key MoversThe New Zealand dollar saw short term relief after bouncing off critical long-term support levels last week of 0.6850. Opening Friday morning at 0.6870 we saw the Kiwi claw back above 0.69 US Cents during the domestic session and movements higher in offshore trade.
Driven recently by trade wars between China and the United States, Treasury Secretary Steven Mnuchin advised that most recent talks were put on hold causing a pause on the strength of the US Dollar and the NZD/USD cross to close higher at 0.6920.
Further movements today will be dictated by the release of retail sales for the quarter this morning hoping to match the previous strong release of 1.7% on seasonally adjusted terms.
The New Zealand Dollar opening this morning at 0.6920.
The Great British Pound has edged lower on Thursday against the Greenback, ending the week near the 1.3450 4-month low, with concerns around the EU-UK future trade relationship post Brexit. The currency pair is stuck to strong support zone of 1.3440-1.3500.
Again this week the calendar is light, markets will turn to April inflation figures on Wednesday which should provide a positive picture of the UK economy with inflation stabilising at 2.5%. On Thursday we will see the release of monthly Retail Sales data with expectations the core retail sales figure rising 1.3% m/m.
From a technical perspective, the GBP/USD pair is currently trading at 1.3478. We continue to expect support to hold on moves approaching 1.3440 while now any upward push will likely meet resistance around 1.3510.
Concerns over potential breakdown of trade talks between US and China caused major equity indices to weaken on Friday. The S&P 500 lost 0.3% and the Nasdaq fell 0.4% however, Dow was unchanged for the session.
Over the weekend the US Treasury Secretary said “we’re putting the trade war on hold. So right now, we have agreed to put the tariffs on hold while we try to execute the framework”. A Chinese official on Friday denied reports saying that an offer has been made to purchase American goods and cut its surplus with the US by $200 billion.
Adding to this, US treasury yields were holding above and also closed above 3% which dampened investors sentiment.
The Euro dropped to a new year-to-date low of 1.1753 versus the USD on Friday, amid fears surrounding Italy’s populist parties reaching a deal and broad USD strength. The pair managed to recover slightly towards the end of the session, closing around 1.1770, down 0.2%.
EURUSD is opening flat this morning, despite other majors improving versus the USD, with support around December 18 low of 1.1737 and then 1.17, the Fibonacci retracement based on January 17 gains. On the upside, it seems like 1.1820 would gather some selling interest.
The next move for the Euro will depend on further developments on Italian politics, which is putting a lot of pressure on European peripheral bonds.
The loonie is opening slightly better this morning, around 1.2880, after having a very weak session on Friday that saw the CAD loosing as much as 0.5% versus its US counterpart.
Unfortunately for the CAD, NAFTA negotiations don’t seem to be going as expected while retail sales excluding autos came weaker than estimates. Also, yields didn’t support the CAD as Consumer Price Index Year-over-year also missed estimates.
Levels to watch for the USDCAD this week are 1.29 and then 1.2950 on the upside while first support for the USD should come around 1.28.
- AUD/NZD: 1.0780 - 1.0930 ▼
- GBP/AUD: 1.7780 - 1.8040 ▼
- AUD/USD: 0.7430 - 0.7570 ▲
- AUD/EUR: 0.6280 - 0.6430 ▲
- AUD/CAD: 0.9580 - 0.9730 ▲