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AUD/USD back on 77 cents ahead of todays NAB Business Survey. USD lower across the board.

By Nick Parsons

On Monday in Asia, AUD/USD initially rallied to just under 77 US cents but two waves of selling during the European morning subsequently sent the pair down (just) through last week’s 0.7660 low and dragged the Aussie lower on all its major crosses. Yet, during the New York session as the USD initially fell against the EUR and GBP, so the AUD then rallied very sharply and retraced all the way up to USD0.7710. In doing so, it covered almost 80% of last week’s entire range in just a few hours!

On the political front, Reuters reports that, “Australian Prime Minister Malcolm Turnbull’s coalition government on Monday lost a 30th straight major opinion poll, a symbolic defeat that intensifies pressure on him after he used the same milestone to oust his predecessor. Although Australia is a year away from a general election, the widely watched Newspoll, published in The Australian newspaper leaves Turnbull facing questions about his future. Three Australian prime ministers have been ousted by their own parties since 2010, dumped by colleagues after their popularity began to wane.”

In economic data, today brings the NAB business survey and the Westpac consumer survey is on Wednesday morning. During the afternoon on Wednesday, RBA Governor Phil ‘slow and gradual’ Lowe is speaking in Perth on “Regional variation in a National Economy.” A Reuters survey last Friday of 44 analysts plots a very uneventful future for the Australian dollar, which is seen at $0.77 in one-month, $0.78 in three months, $0.77 in six months and $0.79 over a one-year horizon. These median point forecasts disguise a pretty wide spread of views, with analysts’ estimates from as low as $0.70 and as high as $0.86 on a one-year horizon. The Aussie Dollar opens in Asia this morning at USD0.7700, with AUD/NZD at 1.0535 and GBP/AUD1.8355.

Given the continued volatility in the New Zealand Dollar, it did not come as any great surprise to see it topping our one-day chart after the first 12 hours of trading on Monday, even though there had been no fresh local news. By the end of the day in New York, it was sharing top spot with the Canadian Dollar with both up between three and six-tenths of a point against the other major currencies. NZD/USD briefly broke above last week’s high just above 0.7320 before slipping back, though AUD/NZD touched a fresh cycle low around 1.0505.

All attention today will be on the REINZ Quarterly Survey of Business Opinion, usually abbreviated to the QSBO. Begun in 1961, it is New Zealand's longest running and most comprehensive business survey which covers manufacturers, builders, architects, wholesalers and retailers, and service sector firms. Information from these industries provides useful indicators of future investment patterns, and the likely direction and composition of economic growth in coming quarters. The last QSBO back in January had showed a sharp drop in business confidence following the General Election, with a net 11 percent of businesses expecting economic conditions to deteriorate over the first half of 2018 and today’s update will be watched closely for signs of improvement amongst NZ businesses.

In a Reuters survey of 37 analysts out on Friday, the median forecast put the currency at $0.72 for one month, three months and six months, ticking up to $0.74 in one year. While the median forecasts were narrowly spread, there was far more variety at the extremes, with the highest prediction for 12-months out at $0.8000 and the lowest at $0.6500. The New Zealand Dollar opens in Asia this morning at USD0.7305 and AUD/NZD1.0535.

The British Pound had a strangely mixed day on Monday. By lunchtime in London it was up against everything except the NZD but by the close of business it had given up all its earlier gains against the EUR and was down also against the CAD and AUD. The so-called ‘cable’ rate hit a session high just below 1.4160 in the European afternoon but then slipped back around a quarter of a cent to 1.4135 with GBP/AUD losing a full cent in just a few hours to 1.8345.

Figures out on Monday morning showed house prices strengthened in March to post their biggest monthly gain since August, according to Halifax, the UK’s biggest mortgage lender. The average price of a UK home rose 1.5% in March to hit £227,871, the highest recorded price. Prices in the three months to March were 2.7% higher than a year earlier, up from the 1.8% annual growth recorded in February. However, Halifax warned that monthly changes could be volatile. Prices fell 0.1% between January and March compared with the previous three months, the second consecutive quarterly decline.

The Guardian newspaper reports that according to a Deloitte survey of chief financial officers (CFOs) at some of the UK’s biggest businesses, companies are now less pessimistic about Brexit after ministers agreed the terms of a transition period with Brussels to smooth Britain’s exit from the EU. Reflecting the views of 106 companies, including almost a quarter of the FTSE 100, the survey found a fifth of business leaders were more optimistic about their firm’s prospects than they were three months ago. On a scale of 0 to 100 for the risks facing their business, the CFOs assigned a rating of 56 for Brexit versus 57 for weak demand as a result of sluggish growth in the economy. Deloitte said this was the first time since the spring of 2016 – before the EU referendum – that Brexit had fallen behind any other potential risk facing businesses, although admitted that some of the weakness seen in the economy will have come as a result of the vote to leave the EU. The GBP opens in Asia this morning at USD1.4125, GBP/AUD1.8360 and GBP/NZD1.9335.

The USD held very steady throughout Monday’s Asian session and the European morning with its index against a basket of major currencies at 89.75; pretty much where it had closed on Friday evening. From around 7am New York time, however, the USD began a more broad-based sell-off as both GBP/USD and EUR/USD found some good buying interest. By the end of the day, the USD index had lost almost half a point from its intra-day high to 89.40.

After a weekend when he had sounded a bit more conciliatory on trade, President Trump once again took to Twitter to criticize current international trade arrangements. “When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade. No, it sounds like STUPID TRADE - going on for years!” Chinese President Xi is due to give a keynote speech on Tuesday at the Boao Forum – often referred to as the Chinese version of the Davos Forum, which is taking place on the tropical island of Hainan – where he is expected to address the trade situation. Despite yesterday’s escalation from the US side, the stock market was at one stage up around 1.5% with the DJIA up more than 400 points before a late sell-off in the last hour of trading saw the majority of the gains erased.

There were no fresh US economic data yesterday and in a week which globally sees 33 G7 Central Bankers giving speeches, no-one from the Fed is scheduled before Dallas President Robert Kaplan in Beijing later today. After producer price numbers on Tuesday, Wednesday brings the CPI data. Consensus expectations are for the headline rate to edge up from 2.2% to 2.3% with the core, ex-food & energy, measure seen rising from 1.8% to 2.1%. The Federal Reserve Bank doesn’t have a CPI target – instead it focuses on PCE – but numbers above 2% for both the headline and core will cement expectations of further monetary policy tightening whatever the wild day-to-day fluctuations of the US stock market. The USD index opens in Asia this morning at 89.40.

Like most of the other major currencies we follow closely here, the euro spent the first 12 hours of the week moving essentially sideways in relatively tight trading ranges. At the start of business in North America, however, the EUR/USD pair caught a decent bid and moved up more than half a cent from 1.2265 to a high just above 1.2325. During this move, the EUR remained steady against the GBP but fell back against the CAD, AUD and NZD.

In economic data on Monday, the headline Sentix investor sentiment index fell to 19.6 in April from 24.0 in March, below the consensus, 20.8. The Press Release noted, “The good weather period for the economy in the euro area is coming to an end. The overall index fell by 4.4 points to 19.6 index points. The third decline in a row is due to a significant deterioration in economic expectations, which fell by 5.8 points and are negative again for the first time since July 2016. The first mover among the leading indicators thus again points out an economic slowdown at a very early stage. Even though the current situation is still rated as excellent at +43 points, the prospects for the future have become massively gloomier… The customs disputes, fueled by U.S. President Donald Trump, are leaving their traces.”

Speaking to the European Parliament, the ECB’s outgoing vice president Vitor Constancio said the European Central Bank should be cautious and avoid tightening its ultra-loose monetary policy too fast. “Inflation, which is our objective, has not yet responded completely to what we wish to see. We have confidence that inflation will continue to evolve...(but) we should be cautious in order to avoid that some early, strongly restrictive policy could derail this development.” Eurozone government bond yields held near recent on concern over economic growth, as a week of hefty European sovereign debt redemptions gets under way. Germany’s 10-year government bond yield is around 0.50 percent, far below this year’s high of 0.81 percent. The EUR opens in Asia today at USD1.2320, AUD/EUR0.6245 and NZD/EUR0.5930.

After its very good week as optimism grew on a NAFTA agreement and incoming economic data held up pretty well, the Canadian Dollar had another good day on Monday, tying for top spot on our one-day performance table with the NZD. Its strong showing didn’t seem on the cards after the first 12 hours of the day, when USD/CAD had drifted up from 1.2780 to 1.2840 but in the North American afternoon, USD/CAD fell over a full cent and printed on a 1.26 ‘big figure’ for the first time since late February.

The Bank of Canada’s Quarterly Business Outlook Survey was released on Monday. It noted that, “business sentiment continues to be positive, supported by healthy sales prospects. Due to recent strong demand, capacity and labour pressures are evident in most regions. Forward-looking sales indicators remain positive across most regions and sectors. Some firms expect a moderation in sales activity from high levels in the past year or a gradual slowing of the pace of the recovery in the energy sector. Although less so than in recent surveys, intentions to increase investment continue to be widespread. Employment intentions are solidly positive, based on firms’ plans for hiring to support expected sales growth or to expand operations.” Overall, it concluded, “Business Outlook Survey indicator continues to be high, signalling positive business sentiment.”

For the rest of the week ahead, the data focus is mostly on the housing market. Tuesday brings building permits, Thursday is new home prices and Friday is nationwide home sales. The Canadian Dollar opens in Asia this morning at USD/CAD1.2705, AUD/CAD0.9780 and GBP/CAD1.7960.