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Australian Dollar continues its rebound

By OFX

The Australian dollar has fared considerably better on Wednesday after trading in a tight trading pattern throughout Tuesday in the lead up to US FOMC minutes. Opening at 0.7140 the AUD climbed quickly to an intraday high of 0.7171 during domestic play.

All gains were erased following the release of Australian building approvals which saw a seasonally adjusted -9.1% reading and its worst measure in 5 years driven lower in both the apartment and housing sectors.

All eyes were on the release of the FOMC minutes overnight as it released a much more dovish rhetoric acknowledging the path of interest rate rises is less clear now. Comments were in line with FOMC chairman Jerome Powell’s speech in Atlanta the previous week that the Fed were closer to neutral than the market was expecting.

The result was an unwind of greenback positions in the market as investors bought gold and equites as the Australian dollar reached overnight highs of 0.7193 and eventual gains of 0.45% on the day.

The ongoing US-China trade negotiations this week have ended in a positive note as Ted McKinney, US undersecretary for trade and foreign agricultural affairs noted “It’s been a good one for us”. It is expected the outcome will be announced over the coming days. Currently in a 90-day truce, the world is eagerly watching the outcome of the first meetings since December.

With little on the agenda domestically today, attention turns to Chinese inflation data due for release this morning as the Australian dollar opens higher at 0.7170.

Risk appetite continues to recover, with increased optimism that the US-China trade war will be resolved before the 1 March deadline. The kiwi dollar is stronger this morning when valued against the Greenback nudging above the 0.68 mark in overnight trading and up over 1% for the day.

On the release front there are no scheduled releases today in New Zealand.

From a technical perspective, the NZD/USD pair is currently trading at 0.6793. We continue to expect support to hold on moves approaching 0.6719 while now any upward push will likely meet resistance around 0.6810. The New Zealand dollar overnight fell against the Australian dollar overnight to a low of 1.0549.

The Pound rose against the greenback on Wednesday but failed to maintain its break through key resistance at 1.2800 as Pound upside was contained by Brexit jitters. GBP/USD touched intraday highs of 1.2803 on the day as a dovish Fed and trade-war correlated risk appetite ensued broad based USD weakness.

On the Brexit front, Prime Minister May suffered another loss on a key Brexit legislation vote. The parliament voted for an amendment which would force the government to announce the next plan in store if the Brexit deal fails to be passed. Thursdays session delivers UK BRC retail sales numbers and BOE Credit conditions surveys which could provide some impetus for the cable. GBP/EUR traders will also be keeping a close eye on the ECB monetary policy meeting on the day.

The key 1.2800 handle now serves as the first line of technical resistance heading into today’s session. Upon breaking through this handle, next lines of resistance are visible at 1.2840 and 1.2896 with any downside moves expected to find bit support approaching 1.2755 followed by 1.2720.

The Greenback slide continued through trade on Wednesday, making fresh lows not seen since October. Investors continued to relinquish USD holdings as markets adjust expectations for future Federal Reserve rate hikes. The FOMC released the minutes from its December meeting, notes that highlighted a shift toward a more cautious approach. The board acknowledged that while underlying fundamentals remain strong there are adverse signals that suggest the pace of growth is slowing and perhaps tipping toward recession. Having affirmed the Fed’s shift away from a preset rate hike program market focus turns to domestic data developments for guidance.

Having edged nearer a break below 95 the dollar index touched lows at 95.207 as optimism surrounding US/China trade talks helped fuel risk demand further dampening USD claims as markets looked to diversify holdings, a move which benefited commodity led and emerging market currencies. The US dollar could remain under sustained pressure through the short term as optimism surrounding trade developments and expectations for a flatter monetary policy platform through 2019 helping to drive appetite for risk and reduce concerns plaguing emerging markets.

Attentions now turn to US CPI data Friday as the headline item on the macroeconomic ticket. A soft read will only affirm domestic headwinds are building and add further pressure on the FOMC to maintain interest rates into at least the middle of the year.

The EUR rose against the USD during yesterday’s trading session, breaking through the resistance ceiling of 1.5 to open at 1.1549 this morning. Yesterday’s data releases of the German Trade Balance, Italian Monthly Unemployment Rate and Eurozone Unemployment rate all came out at almost or above the forecasted figures which is helpful for the currency.

Just before midnight, the European Central Bank will release it’s minutes meeting from their December meeting. The ECB sets the monetary policy for the Eurozone, and the minutes will provide in-depth insights into the economic conditions that influenced their decision on where to set interest rates. There are also a few other Eurozone data releases coming out this afternoon in the French Industrial Production and Italian Retail Sales data which are expected to have a minor impact on the EUR.

The Canadian Dollar continued its advance for the sixth straight day, moving as high as 1.3180 before settling at 1.3215 against its US counterpart. The approximately 0.45% improvement was led by the central banks of both sides of the equation.

Earlier in the day, the Bank of Canada released their monetary policy statement and kept rates on hold at 1.75%. The statement acknowledged the negative impact of low oil prices and the US-China trade wars dampening effect on sentiment. Overall, the statement was cautious in tone.

Further price action did occur later in the day however with the US FOMC releasing their minutes. Tellingly, the statement was dovish with analysts suggesting the Fed is getting closer to the end of the hiking cycle. The result was a wholesale sell off in the Greenback which supported the Canadian dollars gains to close out Wednesday in North America.

Thursday proves to be a quiet day on Canad’s economic calendar with direction to be driven by speeches from members of the US FOMC.