So close, yet so far; Aussie nearly hits 73c
Thursday 8 November, 2018
Daily Currency UpdateIt was a wild ride for the Australian Dollar on Wednesday and has found some upside when valued its US counterpart over the past 24 hours, trading as high as 0.7299 versus the US Dollar. The driving factor were the mid-term elections and as we began to see final numbers released the Aussie surged to a 6-week high. However, as the North America session began, the pair has drifted slightly lower unable to keep up the pace and hovering around 0.7275 at the time of writing.
Yesterday we saw the release of Australian AIG Performance of Construction, the index declined by 2.9 points to 46.4 in October which signalled a steeper rate of contraction in the construction industry. It also marked the industry’s second consecutive month of decline after 19 months of growth and the sharpest rate of contraction since October 2016.
There is no local data scheduled for today, tomorrow sees the release of the RBA’s monetary policy statement which provides valuable insight into the bank's view of economic conditions and inflation minutes.
On the technical front, supports sits at 0.7250 and 0.7200 with resistance up around 0.7300 and 0.7315
Key MoversThe New Zealand Dollar rose sharply during Wednesday’s early Asian session on the back of strong employment figures. The NZD/USD jumped from 0.6670 to 0.6740 straight after the report with the unemployment rate for Q3 reporting a strong decline moving from 4.4% to 3.9%, the lowest in almost a decade and the highest employment rate in 30 years at 71.1%. Even average hourly earnings rose by 1.4% q/q, which was significantly above the private wage growth seen at 0.5% q/q.
Earlier this morning the NZD also benefited as events in the U.S unfolded and results of a spilt congress with the democrats taking the house were confirmed. The pair broke through 67c to touch a high of 0.6782 .
Also this morning at the time of writing the Kiwi benefited on the back of the RBNZ release, the OCR (Official Cash Rate) which as expected was kept at record lows of 1.75% and said it would stay at this level through 2019 and into 2020. With the governor Adrian Orr in his accompanying statement saying that “There are both upside and downside risks to our growth and inflation projections. As always, the timing and direction of any future OCR move remains data-dependant”.
Now that we have taken out 67c, next test here is 0.6800 and 0.6850, downside support sits 0.6700.
The Great British Pound appreciated significantly overnight to open this morning at 1.3136 finding support on both sides of the Atlantic. The big news overnight was of course the US Mid-Term elections which ultimately came and passed as expected. The USD did soften on the result however as the geo-political landscape changes significantly.
The major catalyst for the Sterling’s push upwards however was again found from Brexit rumours and news. According to Reuters sources, Prime Minister May relayed her concerns to EU President Tusk ahead of a Friday deadline. Both parties are reportedly hoping for a breakthrough by Friday so that they can hold a summit by the end of the month. High-level negotiations are continuing and while a clear-cut divorce deal is presumably still far away, traders have taken a decidedly optimistic tone ahead of the close of the week.
Moving into Thursday, Traders will again keep their attentions on the on-going Brexit negotiations and will also look forward to the US FOMC statement slated for release later in the day.
All eyes were closely watching mid-term election results in the United States yesterday as the drama unfolded mid-morning in Australia. Volatility was heightened heading into the results as liquidity remained thin with traders remained on the sidelines.
As numbers came in there were swings either way for the Dollar Index as it traded in a wide range for a number of hours between 95.90 and 96.45, eventually settling lower as the Democrats defeated the Republicans and taking control in the House of Representatives with the Republicans holding onto the Senate.
Under a split Congress, it will be harder for President Donald Trump to push through any new stimulus or tax cuts through the House of Reps and as expected the Greenback came under pressure against the majority of currencies overnight.
The DXY finished the day down 0.16% after seeing intraday lows of 95.70. The USD/JPY opens slightly higher today at 113.55 ahead of this evenings Central Bank policy meeting where it is expected the Federal Reserve will keep interest rates on hold. Market participants will be keen to see any changes to the FOMC statement as the CME Fedwatch tool suggests that there is a 75% chance of a fourth hike in Decembers meeting.
The Euro edged marginally higher through trade on Wednesday as investors absorbed the results of the US congressional elections. While largely expected the democrats win in the House has fostered some short-term dollar softness amid fears ongoing fiscal stimulation will be harder to push through, perhaps weighing on the future growth outlook and dampening the Fed’s appetite to tighten monetary policy. Having touched intraday highs at 1.1466 the 19 nation slipped marginally lower into the close and opens this morning at 1.1450.
The market reaction to the US midterms was largely muted as most anticipated the Republicans would retain control of the senate while the democrats would win a majority in the house. The split across both levels of parliament may make domestic policy tougher to push through but republican control of the senate should ensure Trump still has plenty of leeway and support when it comes to foreign policy and trade. The in-line result has fostered a modest depreciation across the day but does little to change the current course for major currencies and attentions now return to fiscal and macro drivers.
Attention now turn to French and German Trade Balance data while the FOMC statement headlined the docket ahead of next weeks GDP and CPI prints.
The USD/CAD pair was dominated in early proceedings by the result of mid-term elections. The greenback was sold off in droves from its opening position of 1.3120 to 1.3060 as news was drip fed into the media.
Loonie gains were then erased in the North American session as a slide in crude oil prices took hold, losing more than $1 a barrel to $61.30. Markets saw 7-month lows due to further increases in supply to 7.8 million bbl for the week ending November 2nd as reported by the American Petroleum Institute.
Support looks to be key at 1.3050 with any advances at present likely to be met with resistance at November 1st highs of 1.3170. The USD/CAD opens this morning slightly lower at 1.3112.
- AUD/NZD: 1.0660 - 1.0870 ▼
- GBP/AUD: 1.7850 - 1.8280 ▼
- AUD/USD: 0.7030 - 0.7320 ▲
- AUD/EUR: 0.6250 - 0.6410 ▲
- AUD/CAD: 0.9380 - 0.9620 ▲