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AUD steadies ahead critical short term and medium-term markers

By OFX

The Australian dollar edged higher through trade on Friday extending moves above 0.71 and putting some distance between itself and key technical supports. Having tested lows approaching 0.7060 earlier in the week the AUD rebounded through Friday to extend a break and test moves approaching 0.7145. The AUD found support in hopes the US and China would reach a trade accord. Optimism surrounding recent negotiations helped the recently embattled AUD form a sturdier base of support and appears well bid on moves approaching 0.7050 while buying opportunities emerge on moves below 0.7080.

That said, the bearish bias remains broadly intact and there are a number of key data sets this week that pose a threat to medium and longer-term direction. Tuesday RBA minutes will offer greater clarity regarding the boards apparent shift in sentiment while Wednesday’s quarterly wage price index and Thursday’s employment print offer a critical insight into labour market performance. Strong reads across key employment indicators could release some of the recent pressure imposed by the RBA shift in bias, however softness will likely amplify the chorus of market commentators calling for a rate cut and see the AUD test recent lows.

We expect the AUD to remain range bound leading into Tuesday with this week shaping short and medium term direction, key in determining whether the AUD will extend this downside below 0.70 in the immediate future.

The New Zealand Dollar was the strongest of the majors this week, opening at a one-week high of 0.6868 this morning against the United States Dollar. Most of this gain can be attributed to the Reserve Bank of New Zealand’s Monetary Policy Statement on Wednesday, with further upward movement due to Manufacturing Index and Visitor Arrivals data releases on Friday morning. Today should see a quiet day for movement due to banking holiday President’s Day observed in the United States

In terms of macroeconomic data, Statistics New Zealand will release their quarterly PPI data Wednesday morning. The two releases will show the changes in price of goods purchased and domestics goods sold by manufacturers and are leading indicators of consumer inflation. The GDT report is also tentatively expected to be released on Wednesday, showing the changes in average price of dairy product sold at auction. As a major commodity for New Zealand, rising prices can boost the nation’s export income.

The Great British Pound closed Fridays session at 1.2884 vs the US Dollar moving from a low of 1.2789 witnessed early in the Asian session. Aiding the Sterling were some better-than-forecasted Retail Sales data which showed a rebound in January from a steep slump in December as consumers headed back to the High Street in the New Year potentially setting the economy up for a recovery of GDP growth from a similar downturn back in December.

Retails Sales grew by 1 percent following a revision of -0.7 percent in December. As sales picked up 1.2% on the month this gave investors cause for confidence, suggesting that consumers remain unfazed by Brexit jitters.

Looking ahead, The U.K. is to publish industry data on house price inflation and tomorrow we see the U.K. publish its monthly jobs report.

Financial markets in the U.S. will be closed for Washington’s Birthday, more widely known as President’s Day.

The US Dollar index moved initially higher on Friday in the lead up to a number of domestic data releases slated for the North American trading session. Opening at 97.05, the DXY saw a high of 97.37 following a positive release of the Empire State Index, showing business activity grew modestly in New York State. Both import prices and industrial production disappointed as the greenback stalled from its push to test December highs.

It is expected to be a light day of trading as the United States observes Presidents Day on Monday. The focus this week centres on the release of central bank minutes on Thursday morning as investors look for insights on recent policy shifts to a more dovish stance.

Trade talks between United States and China look to continue this week as President Donald Trump was briefed on the weekend after five days of negotiations. Talks resulted in Trump tweeting that the recent developments were “Very Productive”. The deadline for an agreement is on March 1st.

The DXY opens 0.1% lower this morning at 96.92.

The Euro traded amid much the same pattern through trade on Friday, following global risk trends, advancing against the Safe Haven USD and JPY while giving up ground to commodity led and emerging market currencies. Having lost 2% and 1% to the NZD and AUD the nineteen nation combined unit rallied against the CHF and JPY closing the week higher and highlighting investors appetite for risk. While the Euro has maintained a sustained period of support on the back of fluctuating risk returns there are crack appearing in the veneer, suggesting we may be poised for a break toward the downside in the coming weeks/month.

Recent underlying fundamentals have, particularly growth and inflation indicators have forced the ECB and analyst to push back expectations for a rate hike following the European summer. While the Euro has benefited from a correction in US rate expectations there is a broader expectation that ongoing US expansion and equity outperformance will lead to Fed tightening in some form or another while the ECB will likely maintain is uber accommodative stance through the foreseeable future.

Having broken 1.13 through last week attentions turn to key technical supports at and near 1.1250. A break below this handle could prompt a deeper downward correction, pushing lows toward 1.10. With little of note on the calendar to start the week attentions turn to Thursday wherein a slew of data sets could prompt a swing outside ranges. Softness across key services and manufacturing data sets and dovish inflation print could all but guarantee the ECB remains accommodative into 2020.

The Canadian dollar edged higher on Friday against the Greenback to 1.3340 but failed to break through 1.3375. The global trade war between the United States and China has hurt manufacturing industries worldwide. On Thursday last week Canadian manufacturing sales fell 1.3% in December, after a decline of 1.4% in November. December’s oil price weakness was largely to blame.

On the data front there are no scheduled releases today. Looking ahead this week and on Thursday we will see the release of Wholesale Sales for December. On Friday all eyes will be on Retail Sales figures, also for the month of December, which will be looking for a bounce back after a disappointing November where retail sales fell by 0.9%.

From a technical perspective, the USD/CAD pair is currently trading at 1.3246. We continue to expect support to hold on moves approaching 1.3196 while now any upward push will likely meet resistance around 1.3375.