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Australian Dollar sees 2 ½ month highs

By OFX

The Australian Dollar extended its rally that began on Tuesday and we saw the AUD/USD pair touch 2 ½ months highs on Friday of 0.7338 on the back of dovish Fed comments. A vice chairman of the Federal Reserve Richard Clarida told CNBC on Friday that interest rates were near neutral, but indicated that a December rate hike is still possible. The news sent the Greenback tumbling leading speculators to think that the Fed would pause its gradual rate hike sooner than expected.

This morning the AUD/USD pair opens at 0.7330 with the economic calendar light today, the Aussie will likely look offshore for direction. With another Fed member John Williams speaking at an event in New York after what we saw on Friday investors will be looking for clues from him.

On the technical front, we have broken through some key resistance points, whether we can extend towards 0.7350 and beyond depends on US and China.

Another strong day for the Kiwi on Friday saw the local unit close the week a touch under 0.6880, a level we have not seen since June. The weekly moves represent a 2% gain against the greenback with the currency now sitting up 7% from its early October lows heading into the rest of the year.

Friday’s session saw dovish commentary from Fed Chair Clarida, engendering broad based USD weakness and a downtick in US yields, aiding the NZD and AUD to continue their weekly upward trend. This weakness was compounded by an improvement in global risk sentiment following positive signs emanating out of the US-China Trade dispute, with President Trump expressing optimism regarding a pending deal as well as indicating he may not proceed with his threats to impose additional tariffs on the worlds second largest economy. The outlook for the Kiwi for the remainder of the year will remain sensitive to how these talks develop.

The Kiwi’s gains against the crosses were rather modest. The AUD also closed the week strongly which constrained the NZD/AUD to trading largely flat around the 0.9380 handle. Brexit related GBP weakness also allowed the NZD/GBP cross to reach fresh weekly highs of 0.5360, a 0.2% appreciation on the day.

Today’s calendar is packed with second tier data, firstly NZ performance of service index for October followed by NZ PPI output for Q3. We then move offshore where we have US second tier housing data for November and Fed speak from NY Fed President Williams.

Following Thursday's fall the Pound Sterling managed to regain some ground by the end of the week to finish it at 1.2828. The Pound Sterling suffered its largest one-day drop in two years versus the Greenback on Thursday after a wave of ministers opposed to Prime Minister Theresa May’s Brexit deal with Brussels resigned. Some good news on Friday that Environment Secretary Michael Gove would stay in the cabinet outweighed a growing plot to force May out of her job through a no-confidence vote. So far, 24 member's of May's party have written no-confidence letters, half the number needed to challenge her leadership.

On the data front this week in the UK it all starts today with the release of the monthly Rightmove House Price Index provides a sample of residential property prices in the UK. On Wednesday we will see the release of Public Sector Net Borrowing.

From a technical perspective, the GBP/USD pair is currently trading at 1.2852. We continue to expect support to hold on moves approaching 1.2810 while now any upward push will likely meet resistance around 1.2890.

The Greenback weakened across the board over the close of last week with the US Dollar Index (DXY) falling by 0.7% to 96.43. Comments from the US Fed Vice-Chair led the movements lower although risk-sentiment did also improve on the back of positive news on the US-China trade war.

The US Dollar was initially forced lower when the US Federal Reserves Vice-Chair Clarida commented in a CNBC interview. Noting the slowing global economy and that monetary policy was nearing neutral, the market took these comments as mostly dovish and sold the Greenback. Adding to the narrative was an WSJ interview with Fed President Harker who mentioned “At this point, I’m not convinced a December rate move is the right move…but I need to watch the data over the next few weeks” adding to the dovish tone from the Fed and sending the USD lower.

The US-China Trade War also turned a corner over the weekend with the outlook on a reconciliation turning positive. President Trump noted that China had responded to his demands but had omitted four or five big issues and wasn’t quite acceptable. He indicated that he may not proceed with additional tariffs and hoped to close a deal with President Xi. This was all, however undermined by VP Pence and President Xi trading verbal blows at the ASEAN summit over the weekend, tempering market optimism.

Moving into the start of the week the market is set to enjoy a quiet day on the economic calendar. All eyes will remain affixed to the headlines for direction.

The Euro witnessed some wild swings last week against the US Dollar having initially touched fresh yearly lows of 1.1215 before bouncing strongly and ending the week at 1.1416. The Euro received a boost from hopes that Italy’s Prime Minister Giuseppe Conte is willing to work with the European Union over the country’s 2019 budget, which has been rejected by Brussels.

On the data front, EU inflation numbers came out without any revisions. The year to year CPI change remained at 2.2 percent, while the core gauge stayed at 1.1 percent. The ECB expects core inflation to rise significantly over the next quarters, according to Mario Draghi's words.

Looking ahead today the macroeconomic calendar sees low tier data releases with Euro Current account and ECB Financial Stability Review

The Canadian dollar was mostly unchanged on Friday trading within a tight range. On the release front, Canada released monthly Manufacturing Sales, which come in better than expected 0.2% (forecast 0.1%) after a decline of -0.4% in the previous release. We also saw the release of Employment data which saw a decrease by 23,000 jobs from September to October according to the October ADP® Canada National Employment Report.

Looking ahead on the data front and there are no scheduled releases in the first half of the week. All eyes will be on Fridays monthly Retail Sales figures for September and the Consumer Price Index (CPI) released by the Statistics Canada for October.

From a technical perspective, the USD/CAD pair is currently trading at 1.3150. We continue to expect support to hold on moves approaching 1.3120 while now any upward push will likely meet resistance around 1.3220.