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AUD resilient in face of USD upswing

By OFX

The Aussie remains relatively unchanged this morning to open at 0.7159 after a mostly quiet day in foreign exchange markets. The US also celebrated Martin Luther King Day which didn’t help to induce market action.

The Australian economic calendar remained bare to start the week with direction being driven off-shore. Australia’s biggest trading partner, China, released their GDP figures which reported that China’s growth has receded to its slowest pace since the GFC. Annual growth came in at 6.4%, which was broadly in-line with market expectations but nevertheless a sobering figure in the context of global growth. There was some positive news however with industrial production and retail sales both above expectations, which helped support the Aussie. Adding to the Aussies anxiety though, were reports from Bloomberg that China and the US have so far failed to make progress on the alleged theft of US intellectual property by Chinese companies, a key sticking point in negotiations.

Moving into Tuesday, the Aussie again looks set to enjoy a quiet day on the economic calendar with direction to be dictated by off-shore forces.

It was a relatively quiet day on the currency front as the United States observed a public holiday overnight – Martin Luther King Jr Day. With volume thinning out and volatility remaining low, the New Zealand Dollar moved little to start the week trading in a narrow range above the 67 US cent handle.

Opening the morning at 0.6740, the Kiwi extended its losses from January 15th Highs of 0.6848 to a morning low of 0.6720 before shifting higher following a positive lead from a raft of Chinese data including a higher industrial production print, growing to an annualised rate of 5.7%.

Steadying its ship overnight the NZD/USD finished a meagre 0.16% lower overnight as markets position itself ahead of tomorrow’s NZ CPI release where it is expected the local economy to have a neutral reading for Q4 2018. Volatility in recent fuel prices is unlikely to have a material effect on inflation till Q1 2019.

While liquidity is expected to remain thin on the markets today, the NZD is likely to see support at 0.6710 with topside resistance in the short term at 0.6770.

The Great British Pound was the strongest major currency overnight, moving 0.3% to 1.29 overnight. It did retreat slightly however, to open this morning at 1.2892.

Brexit continues to dominate market sentiment with fresh news driving direction. Prime Minister May has reportedly given up on her plan to build cross-party support for her EU withdrawal bill and will instead attempt to renegotiate the backstop arrangements to avoid a hard border in Ireland. Unfortunately for PM May, such a plan has been rebuffed by EU Chief Negotiator Barnier and the progress appears limited. Nevertheless, the market reacted positively to the news, potentially pricing in a softer Brexit or delays to the negotiations.

Moving into Tuesday the Sterling looks forward to some news on the calendar with the Unemployment rate and Average Earning index slated for release. Pundits will also keep a close eye on Brexit proceeding for direction.

The USD rose against the AUD yesterday, hitting a 1 week high of 1.4001, breaking through the resistance ceiling of 1.4 before falling to open up this morning at 1.3969. US banks will be closed today due to bank holiday; Martin Luther King Day. When banks are closed, the market is less liquid and speculators influence the market more leading to more volatility.

The talks of trade war between the US and China are said to be progressing well, but unless an agreement is made by March 1st, the 10% levy will rise to 25%. The next round of talks is scheduled for January 30th, when Chinese President Xi Jinping’s economic advisor Liu He is expected to visit Washington for the next round of trade negotiations. This follows the lower-level negotiations that were held in Beijing last week.

The EUR/USD moved within a tight range on Monday seeing a high of 1.1391 and a low of 1.3161, volume and volatility was light due to a U.S bank holiday. Global uncertainties about slowing growth and how political tensions may weaken global growth have made investors more inclined to hold onto safe haven currencies like the U.S Dollar. On the data front, yesterday saw the release of German PPI which came in lower-than-expected contraction of -0.4% month-on-month and the yearly figure fell to 2.7% rather than the expected 2.9%.

Looking ahead, today sees the release of German ZEW German ZEW Economic Sentiment. The survey of 300 German analysts and institutional investors continues to point to pessimism, with nine successive declines. The indicator improved to -17.5 in December, but is expected to weaken to -18.8 points in January. The eurozone indicator has also been marked by declines and the January estimate stands at -20.1 points.

On the technical front, immediate support sits at 1.1350 followed by 1.1309. On the upside, 1.1369 followed by 1.1391.

The Canadian dollar edged marginally lower through trade on Monday following a series of softening Chinese data sets and a US dollar upswing. Having enjoyed a strong start, wherein the CAD outperformed most of its G10 counterparts, the Loonie met selling pressures last week as the USD advanced on increased trade optimism and improvements across industrial activity. The USD enjoyed its first weekly advance of the year forcing the CAD toward two-week lows and despite a brief rebuke Friday the CAD continued the downturn through Monday, touching intraday lows at 0.7510.

Markets are continuing to adjust positions following Fridays softer than anticipated Consumer Price Inflation Index, amending expectations for BoC monetary policy changes and shifting toward a wait and see approach opening the door for a short term test of technical supports and a consolidated break below 0.7480/0.75.

Attentions now turn to domestic manufacturing numbers ahead of Core Retails Sales data Thursday for a broader insight in domestic economic performance. A print below market expectations will affirm concerns the economy is softening and likely enforce investors expectations for a period of neutral interest rates.