Aussie shifts higher on news US/China Trade talks progressing
Wednesday 12 December, 2018
Daily Currency UpdateThe Australian Dollar maintained a tight trading range throughout Tuesday bouncing between 0.7185 and 0.7225 closing marginally higher on the day. News the US and China have engaged in high-level, constructive dialogue on trade and confirmation China will cut tariffs on US auto imports has bolstered investors demand for risk and added a backstop behind the AUD’s recent slide.
Having struggled to push back through 0.72 for much of the Australasian session, positive trade talks helped the AUD drive toward intraday highs at 0.7224. Upside moves were however checked as investors refrain from extending upside expectations on headline news alone. Markets are conscious and wary of moving to early on upbeat trade headlines, preferring to sit back and await a clear cut signal an end to the trade dispute is forthcoming.
While seemingly well supported on moves approaching 0.7175/0.7150 we expect the AUD will continue to bounce amid a wider 0.7150 – 0.7280/0.73 range through the short term. Attentions turn to Westpac Consumer Sentiment as a marker for domestic economic performance while global geo-political risks continue to weigh on risk appetite and cap short term AUD gains.
Key MoversThe NZD rose higher yesterday hitting an intraday peak of 0.6904 against the USD. This is due to the positive news that the US and China have had high-level dialogue on trade, and that China would cut tariffs on imported US cars.
With lack of high impact macroeconomic data in the near future, NZD holders can look out for the statements being released by Statistics New Zealand tomorrow regarding changes in the Food Price Index (FPI). It is a monthly release, but not expected to provide much volatility in the Kiwi. A figure above last months of -0.6% will be a positive for the dollar.
The NZD opened at 0.6876 against the USD this morning.
The Great British Pound suffered deeper losses through trade on Tuesday on reports Theresa May’s tenuous hold of office may finally break. Having bounced off one and a half year lows to push back above 1.26 and touch 1.2640, a stronger dollar and suggestions MP’s pushing for a vote of no-confidence may finally have the numbers sent the embattled unit lower. The heightened political instability has bolstered expectations the UK will be forced to leave the common market without a firm deal in place, raising questions as to the impact on UK economic growth and longer term Sterling strength. Tumbling through 1.25 the pound touched lows at 1.2498 as attentions remain squarely affixed to headline risk.
GBP fortunes remain pinned to ongoing Brexit and political developments making it almost impossible to suggest this is the bottom for the GBP. Having fallen through the last 4 weeks consecutively Sterling’s fates hangs on whether May can enact a last-minute renegotiation with Brussels. Early signs suggest EU spokesmen and women are unwilling to yield, forcing the current Withdrawal Agreement to a Parliamentary vote (before Jan 21).
As one week volatility moves nearer its highest level in the last 12 months ranges are becoming increasingly harder to forecast and we expect the GBP will continue to whipsaw in response to headline news events.
Overnight the Greenback hit a one-month high against a basket of rival currencies as China and the United States discussed plans for talks to avert a trade war between the world’s two biggest economies. The positive news continued as China announced it´s considering reducing tariffs on American cars from 40% to 15%.
On the release front yesterday the Producer Price Index for final rose up 0.1 percent in November the fastest in six years. Final demand prices advanced 0.6 percent in October and 0.2 percent in September. Looking ahead today and all eyes will be on the release of Consumer Price Index (CPI) for the month of November.
From a technical perspective, the Great British Pound was down 0.6 percent currently trading at 1.2489 after falling to a low of 1.2479, which was the lowest since April 2017. The euro was 0.31 percent lower trading at 1.1317. The AUD/USD pair is currently at 0.7200.
Overnight the Euro hit a high of 1.1399 against the U.S. dollar, just missing the 1.1400 level, but fell to low of 1.1306 shortly after as political turmoil in Europe alongside with a fading momentum in Wall Street benefited the greenback in the American afternoon.
On the release front today in the EU we will see the release of Industrial Production for the month of October. However, all eyes will continue to be on the Brexit turmoil.
From a technical perspective, the EUR/USD pair is currently trading at 1.1317. We continue to expect support to hold on moves approaching 1.1295 while now any upward push will likely meet resistance around 1.1345.
The domestic docket offered little to excite investors throughout Tuesday’s trading session and the direction of the USD/CAD was governed by events out of the United States. The Canadian Dollar weakened vs the worlds reserve currency and the pair broke through 1.3400 on the back of a stronger greenback following US November PPI numbers. U.S. producer prices unexpectedly rose in November as increases in the costs for services offset a sharp decline for energy products, but the overall momentum in wholesale inflation appears to be slowing. The pair also lost ground to further weakening in the price of crude oil.
Data wise, today sees the release of the Capacity Utilization Rate. This measure of the industry provides the BOC insights on the level of slack in the economy. Utilization has been fluctuating in the mid-80s in recent quarters. After 85.5% in Q2, a small increase to 85.8% is expected for Q3.
On the technical front, we see immediate resistance at 1.3400 followed by 1.3430 and supports sits at 1.3335 and 1.3290.
- AUD/NZD: 1.0395 - 1.0550 ▲
- GBP/AUD: 1.7180 - 1.7725 ▼
- AUD/USD: 0.7130 - 0.7280 ▲
- AUD/EUR: 0.6220 - 0.6480 ▲
- AUD/CAD: 0.9580 - 0.9750 ▲