AUD falters again on approach to 0.73
Monday 12 November, 2018
Daily Currency UpdateThe Australian Dollar drifted lower through trade on Friday, facing headwinds as investors sold into moves approaching 0.73 and the US dollar found support into the weekend. Having edged higher in early trade markets appeared reluctant to extend the recent upturn beyond 0.7294 as the AUD again failed to break above the 0.73 handle. Friday’s quarterly statement on Monetary Policy offered little to excite investors, maintain the RBA’s neutral approach and proffering few signs the central bank will shift away from its current setting in the near term. While the board did revise wage growth and inflation expectations upward, it noted both were coming from a low base and when coupled against increasing softening within the housing market were unlikely to alter the existing deflationary environment.
The AUD fell through 0.7250 to touch intraday lows at 0.7214 as selling pressure met US dollar strength with falling equity prices (driven by Italy) and stronger US data sets prompting a flight to safety. Further downward pressure came on the back of ongoing US/China trade tensions, wherein the Yuan was again pushed toward the psychological 7 handle. This remains perhaps the single most important driver for the AUD through the short and Medium term. Should President Trump And Premier Xi Jinping fail to negotiate and accord throughout meetings later this month additional tariffs will likely be imposed compounding pressure on the AUD as a proxy to the Yuan and Chinese Growth.
Our attentions remain squarely affixed to the ongoing trade battle while Business confidence, wage price growth and labour market data pepper this week’s domestic macroeconomic docket.
Key MoversThe positive FOMC statement in the United States on Friday morning dragged the New Zealand Dollar lower as expectations rose for a fourth interest rate hike this year in next month’s Federal Reserve meeting. Closing at 0.6775 following the North American sessions, the Kiwi dropped to 0.6745 post announcement.
With little domestic news to close the week, the NZD/USD traded in a narrow range for the rest of the day. The Price of Goods and Services result in the United States rose 0.6% for the month of October, pulling the Greenback higher with it.
The New Zealand Dollar opens this morning at 0.6735 as we expect a day light on liquidity as public holidays are observed in both United States and Canada.
The Great British Pound fell on Friday as investors began to doubt recent optimism about an imminent Brexit deal and the U.S. dollar held on to recent gains. The Pound closed the week below 1.3100, falling to a low of 1.2915. Last week the Sterling traded as high as 1.3176 after Britain appeared to be edging towards clinching an exit deal with the European Union.
On the data front last week Gross Domestic Product (Q3) came in as expected, with the economy growing 0.6% in the three months to September according to preliminary estimates, although business investment for the same period fell sharply, down 1.2% against an expected 0.2% advance. We also saw the release of Manufacturing and Industrial production which was better-than-expected in September, with the first increasing 0.2% and the second flat for the month.
From a technical perspective, the GBP/USD pair is currently trading at 1.2913. We continue to expect support to hold on moves approaching 1.2955 while now any upward push will likely meet resistance around 1.3000.
The USD rose across the board on Friday amidst a backdrop of global risk aversion and a pullback in US equities. The greenback, along with the safe haven Yen and Swiss Franc were the primary beneficiaries of the deterioration in risk sentiment, with the USD index testing 18-month highs even as US treasury yields retreated. The sharp fall in the British pound, and by association the Euro, also aided the greenback’s advance as the impact of ongoing Brexit concerns continue to be felt globally. These moves see the USD open this morning buying 1.3847 Australian dollars and 0.7741 Sterling.
The equity market story was an interesting one, as US stocks gave up some of their weekly gains on Friday with the S&P and NASDAQ closing down 0.9% and 1.6% respectively with no obvious catalyst. Macro data was also broadly strong, US PPI ex food and energy came in a lot firmer than expected although it’s worth noting the bulk of the strength in the read was due to traditionally volatile items, confirmed by the core measure coming in at expectation. The University of Michigan’s consumer confidence index also remained at elevated levels despite recent volatility in equity markets.
Monday is set to be a quiet one for the greenback due to the veteran’s day holiday; markets are open however lower liquidity is expected. Key risk events for the week ahead are Wednesday nights CPI read as well as Thursday nights retail sales numbers which will be watched closely by traders who are expecting the domestic economy’s rosey outlook to be confirmed. Of particular interest on Wednesday will be US Fed Chair Powell’s speech, especially after his hawkish comments from last month during an interview with CNBC.
On the technical front, AUD/USD resistance is still solid at the 0.7300 figure with downside supports clearly evident at 0.7200 and the September 5 low of 0.7144.
The Euro continued to struggle during last weeks close, trading within a narrow range below 1.13 for much of the session. Opening this morning at 1.1325 against its US counterpart, the Euro continues to remain under pressure from political tensions on the continent.
The Euro enjoyed a mostly quiet day on the domestic calendar with little to drive direction. There was however some momentum driven from the geo-political landscape for investors to digest. Primarily there are two key concerns for the Euro with Italy and Britain both causing the Euro some grief. Italy’s Finance Minister Giovanni Tria reiterated that the country will maintain the planned 2019 budget, despite the EU threaten of sanctions and undermining the whole union. Brexit concerns also came in unabated as a no-deal divorce deal continues to appear a distinct possibility. Adding fuel to the fire was a strengthening Greenback which also weighed on Euro valuations. Overall, politics conspired to keep the Euro under pressure and virtually unchanged from its yearly low of 1.13.
Moving into the start of a new week, the Euro again enjoys a quiet day on the economic calendar with little to digest. Investors will keep a close eye on the on-going headlines.
The Canadian dollar fell through trade on Friday moving back below 0.76 to close the week only marginally above 2 month lows at 0.7572. The loonie has continued to underperform when compared with the majority of G10 counterparts as oil prices fall and concerns surrounding the ratification of the new US, Mexico and Canada trade deal escalate amid a divided congress.
The CAD has lost some two and a half cents through the month since October 2nd and the with Bank of Canada now unlikely to raise rates in December the gap between US and BoC yields is expected to widen adding more pressure to the oil driven unit.
With markets closed today in observance of Remembrance Day attentions remain affixed to global trade tensions and fluctuating commodity prices through the day and week ahead.
- AUD/NZD: 1.0660 - 1.0870 ▼
- GBP/AUD: 1.7750 - 1.8150 ▼
- AUD/USD: 0.7130 - 0.7320 ▼
- AUD/EUR: 0.6320 - 0.6420 ▼
- AUD/CAD: 0.9425 - 0.9580 ▼