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Aussie looking to test 0.74 following Trump-Xi meeting

By OFX

The Australian Dollar has surged nearly 1% on Monday’s open, touching highs of 0.7380. This follows the temporary truce regarding the US-China trade war which was agreed by US president Trump and Chinese President Xi at the G20 in Argentina. The agreement sees the US placing a temporary hold on previously proposed tariffs on China whilst officials engage in a 90-day negotiation period. Risk sensitive currencies such as the AUD and NZD have surged this morning as markets begin absorbing the news.

In what is shaping up to be a massive week for the Aussie in terms of data releases, we start the week with third quarter company profits and inventories as well as October dwelling approvals; both due out at 11:30 EST. The market expectation is for a 2.8% rise in company profits and a 0.4% rise in inventories however both reads are unlikely to be market movers. We also have AiG Pmi and ANZ job ads numbers which are followed by the Melbourne institute inflation gauge. Looking a bit further ahead we have Q3 net exports, current account numbers and the RBA monetary policy decision for December due out on Tuesday, closely followed by Wednesdays Q3 GDP read and Thursdays October retails sales numbers. Thursday also sees trade balance numbers and further central bank commentary from governor Debelle to close out the week.

The Aussie has broken through key technical resistance levels during this mornings trade with traders eager to see if the domestic unit can test key psychological resistance around the 0.74 handle. On the downside, first lines of support seem to be at 0.7345 heading into this week. Given the raft of domestic releases due out of the domestic economy this week, it could be a wild ride for the aussie over the coming days which will likely guide the currencies direction for the remainder of the year.

The New Zealand dollar opens higher this morning having jumped through 0.69 on the back of a trade war ceasefire between the US and China. Market moves had been modest in the 24 hours leading into Saturday’s summit as the NZD struggled to extend beyond resistance at 0.6880/0.6890. Investors saw a compromise between President Trump and Premier Xi as “steep in the right direction”. Trumps accession and agreement to waylay the imposition of increased tariffs for 90 days has eased tensions and spurred on market appetite for risk helping the Kiwi touch intraday highs at 0.6921.

Despite the moderate success of the weekend’s trade talks the Kiwi upside was largely muted and investors appear reluctant to significantly extend positions. The contrasting statements/messaging from the US and China continue to cast a shadow over the broader trade discussion, affirming investor fears that hostilities will continue to weigh on global growth and risk appetite well into 2019.

With little of note on the domestic docket this week attentions and direction will remain with broader risk flows leading into GDP and Business Confidence data later this month.

The Great British Pound closed the week on Friday lower as Brexit uncertainties continue to weigh on the Pound. The GBP/USD moved between levels 1.2809 and a low of 1.2738. Pressure is expected to persist into December 11th when UK parliament votes to pass through recent Brexit agreements with the UK House of commons set to vote the days leading up to the vote on 11 December will see PM May campaigning heavily for her deal, both in parliament and with the general public.

On the technical front, Support sits at 1.2725 and 1.2690, with resistance up at 1.2770 followed by 1.2805.

Looking ahead, Brexit politics will continue to dominate the Pound this week as Theresa May tries to woo as many MPs as possible to vote for her withdrawal deal.

The US Dollar index which measures the greenback’s strength against a trade-weighted basket of six major currencies moved within a fairly tight range on Thursday. Following its dramatic drop in the session prior the DXY moved between levels of 96.63 and 97.01. Macroeconomic releases yesterday didn’t help either with US Core PCE Price Index coming in below expectations for the month of October as well as an unexpected rise in unemployment claims.

Us equities trading up, the Dow Jones up around 0.20% to 25,417.75 while the NASDAQ climbed 0.18 percent to 7,304.95. On the commodity front, oil was up at $52.00 a barrel but the metals – gold, silver and copper all lost ground.

Looking ahead, FOMC member William will be speaking at the 80th Plenary Meeting of the Group of Thirty, in New York and we also see the release of Chicago PMI.

The Euro closed lower leading into the weekend having fallen short of pushing through resistance at 1.14. Tumbling through 1.1350 the 19 nation combined unit touched intraday lows at 1.1309 following a dip in headline and core CPI inflation data. The softening price pressures adds to recent weakness across key macroeconomic indicators and raises questions as to the whether the ECB can adhere to its path of monetary policy normalization. Having erased much of last weeks gain the Euro benefited from an uptick In risk appetite in the wake of the US/Chine trade war ceasefire, edging higher into the weekly open and currently trading marginally above 1.1350.

Attentions remains squarely affixed to broader trade conversations, geo-political developments and key growth indicators as markers for direction. Immediate focus shift to ECB president Draghi as he addresses markets on Wednesday ahead of this months ECB policy meeting. A shift in rhetoric and affirmation the ECB will end is QE program this month could help push the Euro back through 1.14 and break the recent bearish undertone plaguing the combined unit.

The CAD improved from its tumultuous week to rise to 0.7553 against the USD this morning. This is partly due to statistics Canada released regarding its 3rd quarter GDP was a weaker result than the gain achieved last quarter. The Loonie is also underperforming due to falling oil prices amidst concerns of an economic slowdown due to the US/China trade war.

All eyes turn to the G20 summit in Argentina over the weekend as US President Trump and China President Xi Jinping meet. World leaders came to an agreement, calling for a reform to international trade rules in an attempt to ease tensions between the two countries, and no doubt the markets will respond accordingly this week.

Upcoming announcements from Bank of Canada are speculated to have a major impact on the CAD. Two statements being released by the bank on Thursday morning surround the outcome of their decision on interest rates and comment about the economic conditions influencing this decision. Expected forecast has the overnight interest rate with no change at 1.75%, whereas the dollar would improve if the actual came in higher.