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Aussie lower as risk aversion grips global markets

By OFX

The Australian dollar fell to 0.7122 against the greenback, a 0.5% fall on the day and representing a 10-day low as risk aversion reared its head again. The risk aversion was largely driven by the news that US-China trade negotiators were making little to no progress on the US’s intellectual property concerns. Global growth concerns were also stoked, with the international Monetary Fund downgrading their global growth projections which was reinforced by weakness in both US and German data releases.

Interestingly, the NZD outperformed, forcing the AUD/NZD cross 0.4% lower on the day to trade at 1.0595 ahead of today’s crucial New Zealand Q4 CPI release (8:45am EST). The read is expected to be flat for the quarter with the underlying metric expected to remain resilient. A beat should see AUD/NZD push lower as the Kiwi rallies however we would likely see the Aussie dragged higher against the greenback.

Adopting a technical viewpoint, we see initial AUD/USD supports at 0.7100 (psychological level) before 0.7035 on the downside. On the topside, first lines of resistance are seen at the 20 day moving average handle of 0.7140 before the Jan 17 high of 0.7220.

The New Zealand Dollar remained relatively range-bound despite a deterioration in sentiment invading global markets. Opening this morning at 0.6730, the Kiwi opens virtually unchanged from yesterdays open which is a good outcome considering the global environment.

In what was a quiet day on the domestic calendar, the Kiwi moved within a tight range but did feel the effects of global markets, briefly dipping late in the afternoon against its US counterparts. Against the other commodity currencies however, the NZD fared a lot better with the NZD/AUD appreciating to 0.9430 and 0.8970 against the CAD.

Moving into Wednesday the Kiwi has some local data to digest with the Q4 CPI reading set for release.

The Great British Pound was one of the best performers overnight despite a wholesale deterioration in market sentiment led by equities and bonds. Commodity currencies bore the brunt of the declines while the Sterling traded on Brexit reports and positive economic data. The Pound appreciated 0.6% to open this morning at 1.2953.

The Sterling enjoyed support from a variety of sources with a strong labour market report leading the way. The report highlighted a fall in the unemployment rate to 4% and the strongest wage growth since the GFC. Adding to the optimism were reports emanating from Parliament that suggest the UK Parliament will be more in control of the Brexit process. A number of amendments have been proposed including, staying in the custom union, a second referendum or an extension of article 50. All three suggestions heavily discount the chance of a disorderly, no-deal Brexit which helped the Pound appreciate further.

Looking forward, the Sterling will again take direction from Brexit headlines.

The USD rose against the AUD yesterday, from a floor of 1.3968, hitting a fresh 1 week high of 1.4052. Disappointing GDP data from China confirmed an economic slowdown, hurting the market sentiment. The greenback took advantage of the dismal market mood and gained momentum amongst lower than expected data from existing home sale data. Reports earlier today reported that President Donald Trump is expected to force the government to maintain the shut-down. This could cause the risk-off mood to continue in the market.

The U.S. has proclaimed it is going ahead with the extradition of Meng Wanzhou, the finance director of telecom company Huawei under claims she breached American sanctions by doing business with Iran. This is seen as a threat against an expected deal to end the trade war between the United States and China. While the agreement has plenty of time to be negotiated with a deadline of March 1st, this event undermines hope for a negotiated trade solution between the two economic powerhouse countries.

The USD opened at 1.4049 against the AUD this morning.

The Euro Dollar zigzagged against the Greenback on Tuesday, initially moving off intraday highs of 1.1372 and touching a low of 1.1336. The pair didn’t react too much to a German consumer confidence report where the ZEW Consumer Sentiment numbers remained weak but were still better than expected. In fact, German Economic Sentiment improved to -15.0 for the current month while Current Conditions came in at 27.6 vs. 43.5 forecasted. Additionally, Economic Sentiment in the broader euro area slipped back to -20.9 for the same period.

The local calendar is light today and the Euro is expected to remain under some pressure ahead of the ECB meeting tomorrow where President Draghi is expected to deliver a cautious (dovish?) message.

On the technical front, the next line of supports currently sits at 1.1324 and then 1.1306. On the flip side, a break above 1.1380 would target 1.1415.

The Canadian Dollar has weakened against the U.S Dollar following disappointing local data, the USD/CAD opened the Asian session around 1.3296, as the trading session progressed and moved into Europe and North America the Greenback touched a two-week high of 1.3357 just before the close. According to the Statistics of Canada, Manufacturing Sales decreased by 1.4% on a monthly basis in November following October's 0.1% decline. Furthermore, wholesale sales dropped 1% in the same period to miss the market expectation for a no-change.

A drop in oil prices didn’t help, US crude oil dropped 2.3% down to $52.57 a barrel on fresh signs of a global economic slowdown.

On the technical front, the next line of support sits at 1.3330 and then 1.3230, on the flip side, a break above 1.3385 would target 1.3420