Aussie test new year to date lows and is poised near critical support juncture
Thursday 10 May, 2018
Daily Currency UpdateThe Australian dollar marked fresh 11-month lows overnight tumbling through 0.75 to touch 0.7434 and was one of the days worst performer when measured against G10 counterparts. Softness across retail sales in March saw the AUD teeter marginally above support at 0.75 throughout domestic trade before a renewed upward run on USD extended losses and pushed the AUD toward and through the lower end of recent ranges. The Euro’s move below 1.19 amid political turmoil in Italy led the Aussie lower as the USD advanced against a basket of currencies and touched year to date highs despite gains being capped by Trump’s withdrawal from the Iran Nuclear Deal. Although well publicised the US’s withdrawal led to an escalation in risk adverse trade and only dampened demand for commodity linked and emerging market currencies. Attentions now turn to Westpac consumer sentiment for direction throughout the domestic session in what is a relatively light macroeconomic calendar. Anything near expectations will likely have a muted impact on the AUD and we anticipate direction will be derived from continued US yield plays and expectations for ongoing monetary policy adjustments. Eyes turn to key supports at 0.7430 with a consolidated break beyond this handle opening the door to a possible deeper correct through 0.74 and toward 0.7320.
Key MoversThe New Zealand Dollar remained in its recent holding pattern during domestic trading yesterday, opening at 0.7015 and trading in a twenty pip range in what was a lucklustre session. The RBNZ released its latest inflation expectations for the quarter whereby there was a slight dip to 2.01% for the two year reading and an average one year inflation of 1.8%. In a survey of 100 consumers, there is a chance of wage growth rising at the fastest pace in four years. With the Kiwi closing stronger at the end of the Asian session and an intraday high of 0.7030, bullish sentiment on the US Dollar resumed overnight with any gains erased in overnight movements. United States Chairman Jerome Powell came out with hawkish remarks regarding markets being well aligned with the Fed rate dot plot causing the NZD/USD to plummet through support levels of US 70 cents and see intraday lows of 0.6955. With a new yearly low and the Kiwi under renewed pressure once again, investors look to the first monetary policy statement by RBNZ Governor Adrian Orr tomorrow whereby a rate hold at 1.75% is fully priced in. With a change in Governor at the helm, market participants will be looking for any change in stance or rhetoric from recent statements around inflation targets and monetary policy. The New Zealand dollar opens this morning at 0.6970.
The Great British Pound is slightly weaker when valued against the US Dollar. The Pound Sterling reached an overnight low of 1.3484 on the back of disappointing UK data. In the first quarter of 2018 UK house prices were 2.2% higher than in the same period a year earlier, but down from the previous 2.7% annual growth, while monthly basis, prices fell by 3.1% in April, below market expectations (-0.2%). There are no macroeconomic data releases scheduled for today. All eyes this week will be on Thursday’s Bank of England monetary policy decision. The GBP/USD pair is now currently trading at 1.3548. We continue to expect support to hold on moves approaching 1.3460 while now any upward push will likely meet resistance around 1.3570.
USD strength continued last night after US President Donald Trump decided to pull out the 2015 Iran nuclear deal and institute the “highest level” of sanctions on the country, sending the Bloomberg Dollar Index up 0.3%. US Equities dropped as much as 0.70% but then recovered, leaving the S&P almost flat for the day. The Volatility Index (VIX) felt and closed below 15, showing a rather muted reaction, probably due to comments by US Treasury Department indicating sanctions will be implemented after “wind-down periods” of 90 or 180 days. Treasury yields increased a couple of pips to 2.97%, still able to hold below the 3% mark.
The Euro fell to a new 2018 low against the dollar on the back of broader USD strength and some pressure coming from Italian bonds, which are reacting to uncertainties around the possibility of new elections. The currency was still able to hold above the important 1.1840 level, one notch below the recent 1.19-1.20 range. The 1.19 level will now be acting as a resistance with considerable volume parked on option related deals.
The loonie weakened to a near 2 months low, breaking out of its recent short-term range. The Canadian dollar closed the session almost 0.50% weaker, around 1.2952 versus the USD. Broad USD strength put upward pressure on the USDCAD. The 1.29 level was acting as a strong resistance recently but as soon as it was broken, the cross almost hit 1.30, settling around 1.2950 afterwards. Price of oil didn’t help, although it recovered a bit after US President Trump announcement around the Iran nuclear deal, prices where down as much as 4% earlier putting more pressure on the loonie. Moreover, there doesn’t seem to be any breakthrough from NAFTA negotiations, probably also weighting on the CAD. Keep an eye on Canada’s job report on Friday.
- AUD/NZD: 1.0630 - 1.0830 ▲
- GBP/AUD: 1.8030 - 1.8280 ▲
- AUD/USD: 0.7430 - 0.7530 ▼
- AUD/EUR: 0.6230 - 0.6330 ▼
- AUD/CAD: 0.9610 - 0.9730 ▼