Aussie sold into dismal GDP read
Thursday 6 December, 2018
Daily Currency UpdateThe Aussie was the biggest loser on the day on Wednesday, falling nearly 0.7% against the greenback after the dreadful Australian GDP numbers dropped. AUD/USD fell from 0.7352 to 0.7297 on the news, which showed the economy grew at 0.3% q/q and 3.3% y/y for the third quarter of 2018, missing market expectations of 0.6% and 3.4% respectively.
The domestic unit’s downfall extended into the overnight sessions, falling to 0.7260 against the greenback and also suffering losses against the kiwi with the AUD/NZD cross retreating to 1.0516 before steadying to 1.0540.
Australia’s data heavy week is set to continue this morning with October retail sales due out at 11:30 EST. Given yesterday’s disappointing household consumption figures in the current account release, markets are expecting a slightly subdue start to Q4 and are currently pricing a 0.3% monthly increase. RBA deputy governor Debelle is also due to speak on “lessons and questions from the GFC” at 8:05pm however no market reaction is expected.
We see immediate support for the AUD/USD around the 0.7265 region however expect any moves through this level to test the 0.7200 handle. On the topside, 0.7315 has now become the first line of resistance heading into today’s session.
Key MoversThe New Zealand Dollar fell through trade on Wednesday, slipping toward 0.69 and touching intraday lows at 0.6893. With little of note on the domestic calendar the NZD took its cues from offshore sentiment and waning demand for risk as the afterglow of the Trump-Xi temporary armistice rapidly unwinds.
Despite slipping against the worlds base currency the NZD tested four month highs against the Australian dollar breaking above 0.95. The NZD has enjoyed a sustained period of upward momentum against the AUD through out the later half of the year after earlier estimates saw the antipodean cross headed for a break below 0.89 for the first time since March 2016. Having broken above resistance and touched intraday highs at 0.9509 the Kiwi is poised to test April highs at 0.9534/40 as Australia’s exposure to China and baseline fundamental indicators force investors away from the Australian dollar.
Attentions today turn to Key US data sets and commentary from Fed Chair Powell as key markers for direction leading into the end of the week.
The Great British Pound retreated during yesterday’s Asian session touching a low of 1.2671 against the US dollar struggling to find any momentum following the release of some disappointing PMI numbers. According to data published by IHS Markit, UK service sector companies experienced another difficult month in November, with both business activity and incoming new work expanding at the weakest rates for almost two-and-a-half years.
The index slumped from 52.2 to 50.4 in November, missing expectations of a modest pick-up to 52.5 and striking a 28-month low. Most importantly however, this leaves the service sector dangerously close to the point of contraction and bodes poorly for UK GDP in the fourth quarter.
As the European and US session carried on the GBP/USD pushed higher touching 1.2797 failing to break the resistance level of 1.2800. Looking ahead, the UK macroeconomic calendar is light and Brexit uncertainty is likely to remain a major catalyst of movement in the pound for the remainder of the week and leading into next.
Technical analysis; Support levels: 1.2730 1.2695 1.2660 with Resistance levels: 1.2760 1.2800 1.2840
It was a quiet day on the U.S. Dollar front as markets were closed as they observed a day of mourning to pay their respects to the late President George H.W.Bush. The New York Stock Exchange and Nasdaq were both closed on Wednesday as stock trading is due to resume on Thursday.
The US Dollar Currency Index (DXY) remained flat trading in a tight range after reaching an intraday high of 97.20. Eventually settling just 0.08% higher for the day, the Index looks to consolidate above the 97.00 handle as liquidity in the market is expected to increase on Thursday.
Released overnight was the latest Beige Book Report which is the release of a summary of commentary on the current economic conditions by the Federal Reserve District. Most districts saw modest to moderate growth over the last two months as consumer spending held steady despite labor markets tightening. Nearly all districts were concerned with the new tariffs in place as trade conflicts continue between the United States and China.
Markets look towards this evenings ADP non-farm employment figures due for release this evening which has been delayed one day due to the closure of markets on Wednesday. This report will be followed closely by non-farm payrolls released on Friday evening.
The Euro finished Wednesday little changed when valued against the Greenback trading around 1.1350. On the release front yesterday EU final Markit Composite PMI for the month of November came in at 52.7, better than the initial estimate of 52.4, but below October's reading of 53.1, hitting its lowest since September 2016. We also saw the release of Retail Sales in the EU which increased by 0.3% for the month October, beating expectations, although the yearly reading fell short of the market's forecast, resulting at 1.7% vs. the 2.1% expected.
Looking ahead today and there are no scheduled releases for the EU with all the attentions turning on Friday’s US data releases particularly ADP Non-Farm Employment and Trade Balance report.
From a technical perspective, the EUR/USD pair is currently trading at 1.1343. We continue to expect support to hold on moves approaching 1.1310 while now any upward push will likely meet resistance around 1.1360.
The Canadian dollar plummets to a 1 week low this morning following the Bank of Canada decision as it held its benchmark interest rate unchanged at 1.75%, as expected. The statement highlighted low prices for oil and cutbacks in crude oil production, that could affect the pace of future rate increases and potential risks to global trade.
Further releases by the bank tomorrow could see a larger decline in the dollar. Just after midnight, the bank will release its statistics on Trade Balance; the difference in value between imported and exported goods during the reported month. Forecasts for this figure sit lower at -0.7B compared to last month at -0.4B. If the actual number is greater than the forecast, this should see a hike in the dollar.
The Loonie opened at 0.7470 this morning.
- AUD/NZD: 1.7180 - 1.7680 ▼
- GBP/AUD: 1.7180 - 1.7680 ▲
- AUD/USD: 0.7225 - 0.7380 ▼
- AUD/EUR: 0.6370 - 0.6540 ▼
- AUD/CAD: 0.9650 - 0.9780 ▲