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AUD pushes back through 0.74 as Yuan finds support

By OFX

The Australian dollar traded quietly throughout Tuesdays’ morning session as the RBA failed to surprise markets before gains in Asian equity markets and reports of Chinese measures to stem Yuan weakness pushed the Aussie through the 0.74 handle late in Sydney trade. AUD/USD touched intraday highs of 0.7440 in the London session before retracing back to levels nearer 0.7420 where we open this morning Sydney time.

As mentioned, the catalyst for the price action seemed to be a sharp rebound in Chinese equities and reports emanating out of China that the PBOC would be taking an active approach to prevent its local currency falling below the 7.00 level against the USD. This saw the onshore and offshore Yuan rally towards the back end of the Sydney session and extend it’s gains in the London and NY sessions respectively. Given the Aussie dollar’s tight correlation with the CNY, the AUD was dragged higher with the moves compounded by a softer USD as global risk sentiment improved.

Looking forward to todays session, we have some second-tier data out in the form of the Westpac consumer confidence index and housing finance reports which should not be market movers. Although we do have some commentary from RBA governor Phillip Lowe regarding recent monetary policy due out at 1pm, traders will be closely watching Chinese trade data for July which is due out this afternoon.

From a technical perspective, recent moves downside supports can now be seen at 0.7400 and 0.7373 with new resistance at 0.7440 and 0.7483 respectively.

Yesterday afternoon the Public Bank of China had met with the local banks urging them to prevent any “herd behaviour” and momentum-chasing moves in the currency market. As a result the Chinese yuan dragged the Australian Dollar higher but the Kiwi was left behind even with higher risk appetite. The Kiwi got to as high of 0.6755 against the Greenback before the move unwound.

On the data front yesterday the New Zealand dollar dipped against the Aussie counterpart after the Reserve Bank of Australia kept interest rates on hold 1.5% and was more upbeat on the economy than expected. Looking ahead this week and focus turns to the Reserve bank of New Zealand’s interest rate announcement on Thursday with the net result should be little change in policy guidance.

From a technical perspective, the NZD/USD pair is currently trading at 0.6735. We continue to expect support to hold on moves approaching 0.6688 while now any upward push will likely meet resistance around 0.6851.

The Great British Pound opened the morning trading at 1.2940 against the US Dollar and saw gains during the open of the European session rallying to an intraday high of 1.2975. Supporting the moves were a bullish read from United Kingdom housing prices, seeing the Halifax house price index push higher to 1.4% in the month of July compared to its previous reading of 0.9%

With political uncertainty around current Brexit plays and renewed strength for the Greenback, cable saw eventual moves lower overnight to test 2018 lows once again and expect to test support at 1.2900 over the coming days.

With little data on the horizon, markets will look towards the release of Fridays UK GDP figures as the Office for National Statistics will now become one of the first major economies to publish growth figures on a monthly basis.

The Great British Pound opens this morning at 1.2935.

As the trade war between the USA and China rages the Greenback appears to be the default currency for investors as risk moves off the table and into safe-haven buying. Trade uncertainty has boosted the US Dollar in the last few months as the US economy is seen as stronger vs other economies evidenced by the Federal Reserve holding a more hawkish view where they raise rates to tame possible inflation as other central banks remain in the offensive mode to stoke inflation.

The US Dollar Index was a shade down on Tuesday and did momentarily fall just under 95, however, the bulls drove it back and closed the session around 95.19. The Dollar has failed to break string resistance up at the 95.50 level in over a year. Against the majors, EUR/USD buying 1.1597, GBP/USD sitting at 1.2938.

In other news, Japan’s wage growth hit a 21-year high according to Japans Ministry of Health, while Household spending fell 1.2 percent in June from a year earlier.

Looking ahead, we have China’s latest trade figures for July with analysts expecting the country’s export growth to decelerate last month amid escalating US-China trade dispute.

The Euro edged higher through trade on Tuesday, bouncing of key technical supports to push back through 1.16 as the steam runs out of the most recent US Dollar rally. The worlds base currency has been well bid through the week thus far as ongoing trade tensions bolster demand for haven assets and drive investors to increase USD holdings, hampering broader Euro performance and prompting a test of key supports at 1.15.

The Euro has suffered a marked correction since the US dollar advance begun in earnest in mid-April falling from year to date highs near 1.25. However technical support at 1.15 seem well bid as the pace of the US advance slows and the US dollar struggles to extend beyond new resistance handles allowing the Euro to bounce between 1.15 and 1.18. We expect the Euro will continue to face short term weakness yet remain well supported on moves approaching 1.15 with a shift toward a bullish up turn as trade tensions ease and the focus shifts back to monetary policy tightening.

Attentions now turn to the Friday US CPI inflation report as the major macroeconomic item on the agenda leading into the end of the week. A strong read only highlights the gap in current monetary policy settings and could force the Euro back toward 1.15/1.1530.

The Canadian Dollar edged lower through trade on Tuesday having failed to take advantage of a broader USD softening. While the Dollar index moved marginally lower through trade on Tuesday the Canadian Dollar failed to keep pace giving up 0.77 and 0.7650 US cents to touch intraday lows at 0.7647.

Despite a marginal uptick in crude oil prices the Canadian dollar moved lower following a softer than expected IVEY PMI print. Falling 2.3 points to 61.8 the leading indicator of economic health forced investors to test supports around the 100 hour and 200 hour moving averages.

Having crept back above 0.7650 attentions now turn to key US inflation data Friday for broader macroeconomic direction.