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Downward trajectory continues as multi year lows tested

By OFX

The Australian dollars downward trajectory continued through trade on Friday consolidating moves below 0.71 despite broader USD weakness. Having broken key supports earlier in the week the AUD broke fresh lows touching 0.7044 before edging marginally higher into the close and opens this morning buying just .07051 US cents.

Despite a broader consolidation for the USD against major G10 counterparts the AUD has continued its march lower breaking supports as investors unwind AUD carry trades positions shifting focus toward the worlds base currency. The Greenbacks yield advantage and the burgeoning gap in monetary policy, highlighted last week by a hawkish Fed and cautious RBA, has forced investors to reconsider high yield plays. The Greenback has become the carry of choice and while there is some suggestion of USD outperformance an expected softening across commodity prices and an ongoing slowdown in Chinese growth are expected to weigh on the AUD into the end of the year and beyond. A break below 0.70 could signal the next step in a broader correction and consolidated move toward 0.69 and 0.68.

Attentions now turn to Tuesday’s NAB business confidence report and Wednesdays consumer confidence print for macroeconomic direction through the week ahead.

The New Zealand dollar followed its antipodean partner lower through trade on Friday falling through 0.6450. The Kiwi failed to capitalise on broader USD weakness following a softer than anticipated non-farm payroll and earnings print. Extending its week and month long losing streaks the NZD touched intraday lows at 0.6433 and looks set to continue its examination of multi-year lows.

Heightened volatility, a softening in equities and a sustained period of risk off trade have all but eroded fundamental support for the New Zealand dollar. Having broken 0.6450 the next level of technical assistance doesn’t appear until 0.6350 and there appears little in the way of short term upside on the horizon as falling consumer and business confidence, a declining terms of trade and a burgeoning yield gap all working against the Kiwi dollar.

Attentions remain with broader risk sentiment as the macroeconomic docket offers little through the week ahead.

The Great British Pound opens this morning at 1.3113 against its US counterpart as Brexit optimism drove the Sterling higher. A weekly high for the Sterling, the headlines supported the Pound through the close of last week with the EU reportedly willing to offer the UK a “super-charged” free trade deal.

The papers kicked things off with a report that EU Brexit negotiators were “very close” to a divorce deal and were happy to offer a free-trade deal better than any agreement that’s been penned before. However, other headlines also suggest that EU diplomats will refuse Prime Minister May’s demand for frictionless trade, potentially putting the deal at risk in the UK Parliament. Also of note, was a report that the EU is drafting tough contingency plans for a no-deal Brexit which is set to be revealed later this week. Tellingly, the report suggests that the EU is not planning special arrangements for customs or road transport that would cause long delays. Despite the mixed headlines, the Sterling forced its way higher as the market took the news optimistically.

The GBP now turns to a quiet start to the week on the economic calendar but all eyes will remain fixed on the Brexit headlines.

The Greenback moved slightly lower against a basket of currencies as investors took the opportunity to take some profits off the table. Opening this morning at 95.60 on the US Dollar Index (DXY), the Greenback remains at a relative position of strength against its counterparts.

The catalyst for Friday’s price action was a mixed US employment report that ultimately fit the theme of a tightening US labour market. Non-farm payrolls kicked things off in slightly weaker territory than Septembers reading, although this was largely mitigated by upward revisions from prior months. More tellingly, however was the unemployment rate which fell to 3.7%, its lowest level since 1969. Adding to the broader narrative of the Fed’s thinking, NY Fed President Williams was interviewed shortly after the employment report and reiterated their commitment to a gradual tightening of monetary policy. Despite the low unemployment rate, President Williams confirmed that the rate remains accommodative and there was some way to go before reaching neutral territory.

Moving into the new week, the Dollar is set to enjoy a bank holiday and a quiet start to the week.

It was an uneventful finish for the Euro on Friday to close the week at 1.1520 and down 0.60% from open on Monday. Trading in a tight range of 1.1490 – 1.1520, supporting the Euro was the release of German factory orders which showed an increase in seasonally and calendar adjusted 2% on the previous month.

With US Nonfarm Payrolls coming in lower than expected for the month of September, there was a small spike from 1.15 to 1.1550 for the EUR/USD cross as data disappointed before pairing gains shortly thereafter as unemployment rates came in lower at 3.7%.

A focus this week looks towards the ECB minutes released on Thursday along with several economic releases in Germany. Markets expect to be thin today as the United States and Japan both observe public holidays.

The EUR/USD opens this morning at 1.1525.

The Canadian Dollar was largely supported last week by the new trade deal (NAFTA) between the United States, Mexico and Canada. The agreement sent the USD/CAD falling from highs on the 28th September of 1.3080 to 1.2780 following the announcement. Friday was dominated by employment changes in both Canada and the United States.

Canada saw unemployment figures slightly lower at 5.9%, down from 6% with employment rising by 63K jobs for the month of September. Trade balance was also positive with a surplus for the first time since December 2016.

With the United States also releasing their own set of employment figures at the same time, the USD/CAD oscillated wildly between 1.2890 and 1.2950 before moving slightly higher to close the week at 1.2945.