Aussie tumbles thanks to RBA Governor Philip Lowe
Thursday 7 February, 2019
Daily Currency UpdateThe Australian Dollar has suffered a heavy sell-off against the Greenback on Wednesday following a speech by RBA Governor Philip Lowe. The Aussie shed 80-pips immediately after his speech falling from the mid 72’s down to 0.7170. Mr Lowe said over the past year the next move in the cash rate was likely to be more up than down, today however, the probabilities appear to be more evenly balanced.
He mentioned the biggest uncertainty in the domestic economy remains the consumer. Household income growth is important to the outlook for consumer spending and falling house prices pose a further risk. The AUD/USD was dragged lower during European and North American trade and is currently holding on to 71c by a thread.
Looking ahead NAB Quarterly Business Confidence is due to be released.
On the technical front, support sits at 0.7050 and 0.6980. On the flip side, resistance is up at 0.7150 and 0.7200.
Key MoversThe New Zealand dollar saw strong selling pressure yesterday afternoon as it failed to capture recent upside momentum above the 69 US cent handle. Opening at 0.6890 against the greenback, intraday highs were seen briefly in the morning at 0.6905.
A selloff was then seen on the Australian dollar following a dovish statement from RBA chief Philip Lowe, suggesting they are accommodative of a possible rate cut with downgrades in growth forecasts. The news pulled the Kiwi along with it seeing a decline overnight to 0.6840.
We saw a fifth consecutive rise for milk prices in the latest Global Dairy Trade auction, seeing a 6.7% increase on the GDT price index with Reneet Casein and whole milk powder the main drivers but saw little price action for the NZD following the news.
This morning there has been large moves lower at the time of writing as the NZD/USD plummeted to 0.6770 on open. Disappointing employment figures for the month of January were released to the market and fueling the fire further for the RBNZ to change their neutral policy stance and open the door to a interest rate cut in the future.
The Great British Pound struggle to move off two-week lows on Wednesday bouncing between 1.2930 and 1.2980 as investors wait on Brexit developments and a Bank of England Policy update before extending positions. Prime Minster Theresa May continues to push her European Counterparts to accepts modified versions of her Brexit package ahead of a key vote in UK Parliament next week. While investors remain optimistic a deal will be struck, and a disorderly exit avoided, comments from EU Council President Donald Tusk, suggesting he would make no new offer to Britain are amplifying recent market jitters.
While steady now we expect increasing volatility leading into the March 29 deadline. Failure to agree an exit deal or deliver a clear and definite extension to Article 50 will ensure sustained downside risks remain in place for the Pound and we see topside gains in the current environment capped at 1.31 while long term risks are still disproportionately skewed to the downside. Recent Reuters polling suggests a two to five percent uptick in GBP value if a deal is reach while a no deal divorce could prompt a five to ten percent depreciation.
Attentions today turn to the Bank of England policy update today. We expect an opaque offering from the MPC with little clarity on interest rates as the next move hinges on the Brexit outcome.
Amidst a quiet day on the economic calendar the Greenback marginally moved its way higher against a basket of currencies, reaching 96.39 on the US Dollar Index. Up 0.33% for the day, there wasn’t too much to drive momentum for the Dollar, however events off-shore supported the Greenback.
There were some events slated to potentially move markets overnight with Trump’s State of the Union address being a key point of interest for financial markets. Nevertheless there wasn’t too many gremlins from the speech to cause any effect on financial markets, although tellingly, there was little to provide comfort that another government shutdown can be avoided. There were also no additional headlines from the US-China trade war to analyse. Overall, the Greenback took its cues from foreign markets with the Euro, Aussie and Kiwi all falling precipitously to name a few.
Moving into Thursday, The US Dollar looks to the Federal Reserve for direction domestically with Fed Chair Powell set to speak later tonight.
The Euro continued its poor run of form this week, dropping again overnight. Opening this morning at 1.1364, the Euro’s weakness came on the back of softer German factory orders which were weaker than expected in December.
The soft German factory order data did the Euro few favours with the Eurozone again seeing little to suggest a turnaround from a weakening domestic economy. With the Eurozone looking perilously close to a recession in the second half of last year, the market is searching for any indicators suggesting a recovery which so far has not materialised. Across the Atlantic, Trump’s State of the Union address caused little change for financial markets.
Moving into Thursday, the Euro has a little bit more to digest. There is German production numbers, French trade balance and Italian retail sales to start. Followed on by EU economic forecasts and a monetary policy statement from the Bank of England across the channel.
Wednesday saw crude oil sold off for the third consecutive day which again saw the commodity linked Loonie weaken across the board. USD/CAD managed to rise above the key 1.32 handle on the day, the first time it has broken this resistance since January 30. As of writing, USD/CAD is currently trading sightly lower, oscillating around the 1.3185 handle.
On the data front, Ivey PMI numbers out of the domestic economy came in at a seasonally adjusted 54.7 for January, well below market expectations of 56. The miss obviously weighed on the CAD, forcing it lower in the lead up to Friday’s vital labour market report.
Given recent moves, we still see first lines of technical resistance at the 1.3200 handle, with moves beyond this figure expected to meet further resistance approaching the Jan 30 high of 1.3280. On the downside, supports are evident at the daily low of 1.3125 before the Feb 2 low of 1.3070.
- AUD/NZD: 1.0350 - 1.0510 ▼
- GBP/AUD: 1.7850 - 1.8350 ▲
- AUD/USD: 0.6210 - 0.6350 ▼
- AUD/EUR: 0.6210 - 0.6350 ▼
- AUD/CAD: 0.9320 - 0.9520 ▼