Markets focus on todays all important Australian CPI
Wednesday 25 July, 2018
Daily Currency UpdateThe Australian Dollar throughout Tuesday’s Asian session remained under pressure and stayed below 74c on the back of renewed US Dollar buying interest. However an advance in both Copper and Zinc prices both up more than 2% pushed the AUD/USD pair through short-term resistance touching an eventual high of 0.7434 in the early hours of New York. The Aussie led the advance in the G10 currencies and preformed the best moving from a low of 0.7360 to a high of 0.7434.
With no major data releases yesterday, investors remained mindful of Trump's displeasure over the Fed's monetary tightening claiming that their plans to raise U.S. interest rates risked undermining his efforts at strengthening the economy.
All eyes will be focused today on Consumer Price Index (CPI) figures which should freshen the debate as to when the RBA are likely to raise rates again. The headline reading for inflation is expected to pick up in the second-quarter of 2018. Markets are expecting to see a small jump from 0.4% to 0.5% q/q and 2.3% y/y. This would put the inflation rate back within the confines of the RBA’s 2% to 3% target band.
Initial support is seen at 0.7400 and 0.7345, resistance up at 0.7460 and 0.7500
Key MoversThe New Zealand dollar pushed back through 0.68 U.S cents as risk appetite gained broader traction on news China will support easing monetary policy and increase fiscal stimulus into the end of the year. Equities have rebounded some 5% since Friday’s close and the yuan stabilized above 13 month lows allowing the Kiwi to shrug off yesterdays softening and push back toward resistance at 0.6820.
While one of the day’s top outperformers the Kiwi still struggled to push through key technical stops and faltered on approaches nearing 0.6820. Much like its antipodean counterpart the NZD appears largely range bound constrained by broader global trends and longer term expectations of neutral monetary policy.
With support at 0.67-0.6720 attentions turn to Junes trade balance print today for short term guidance. Anything short of a $200million surplus could put pressure on the Kiwi and prompt a shift back below 0.68.
The Great British Pound is slightly stronger this morning when valued against its US counterpart reaching a 24-hour high of 1.3158 on the back of positive UK data and Brexit headlines. Prime Minister Theresa May confirmed to parliament she will lead the Brexit negotiations taking personal control of European Union withdrawal.
On the data front yesterday CBI (Confederation of British Industry) Industrial Trends survey revealed that new orders continued to expand with the index at 11 vs. the expected 9. As a result manufacturing growth accelerated to its strongest pace in a year while a slight slowdown in new export orders. Looking ahead today and we will see the release of Mortgage Approvals which forecast to show a rise of 39k in June from 39.4k in the previous month of May.
From a technical perspective, the GBP/USD pair is currently trading at 1. 1.3144. We continue to expect support to hold on moves approaching 1.3080 while now any upward push will likely meet resistance around 1.3155.
Risk sentiment took another twist in overnight trading with the market responding strongly to rebounds in commodity markets and equities in China. The risk-on environment led to a marginal softening of the Greenback with the US Dollar Index now treading water at 94.61, a measly 0.02% lower. Ultimately however, commodity currencies are higher against the United States Dollar with most other majors remaining relatively flat.
With a mostly benign day on Twitter, attentions turned towards China which recently announced policy measures to add liquidity and encourage banks to lend more to small business’. The PBOC also mentioned measures to ease monetary policy and ramp up fiscal policy. China did fall short of announcing a big stimulus package but nevertheless the direction was clear, and the market responded accordingly. Chinese equities were boosted by approximately 5% since Friday with commodity prices also benefiting. USD/CNY dipped slightly below 6.8, reversing the upward trajectory the Greenback has been on. Commodity currencies also recovered strongly with he Aussie being the best performer, up almost 0.5%.
The Greenback is now set to enjoy a quiet economic calendar for Wednesday with direction to be determined by the headlines and off-shore risk events.
The Euro closed slightly stronger yesterday in line with the PMI Eurozone data that came almost flat versus expectations. EURUSD closed 0.04% up at 1.1687 and just shy of the 55-day moving average at 1.1705.
Next focus will be EU Juncker’s meeting with Trump and the press has suggested there will be no offer on tariffs. On the other side, Trump said tariffs are good because is a good way to hit countries that don’t want to negotiate a fair deal.
Range trading will probably continue within 1.1650 and 1.1750 until we get further insights either from auto tariffs or from expectation ahead of Thursday ECB meeting.
The USDCAD continued trading within the short-term range of the last sessions but the CAD managed to close 0.12% stronger versus the USD at 1.3155.
The USD ended the day relatively unchanged versus a basket of major currencies but commodities and resource-based currencies performed well against the USD amid China’s fiscal stimulus plan.
A pretty light close to the week for Canada from the data front but the loonie will probably move relatively to the USD based on the next run of tariff talks between the US and Europe plus NAFTA negotiations between the US, Canada and Mexico.
- AUD/NZD: 1.0830 - 1.0970 ▲
- GBP/AUD: 1.7620 - 1.7880 ▼
- AUD/USD: 0.7320 - 0.7480 ▲
- AUD/EUR: 0.6300 - 0.6380 ▲
- AUD/CAD: 0.9700 - 0.9820 ▼