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Australian Dollar retreats from 3-month highs

AUD - Australian Dollar

The Australian Dollar rallied on Thursday breaking through key resistance levels of 0.6900 vs the Greenback to touch 3-month highs of 0.6929. There were two key drivers for the rally; the US Fed and a local macro-economic release. On yesterday’s open the AUD/USD was still enjoying the weakness in the US Dollar following the Fed’s decision to cut rates by 25 basis points and failed to give a clear message on further easing during the prior session. As the Asian markets opened, the pair began testing 69c and all it needed was some positive local data to give it that nudge through 69c. Australia saw the release of Building Approvals for the month of September, surprisingly and catching the markets off-guard, the number of approvals issued rose 7.6 per cent, coming in at 14,004. The numbers beat expectations for a flat reading following the 1.1 percent drop in August. Rate cuts as well as an easing around mortgage serviceability guidelines have helped home owners regain its footing in the residential market over the past few months.

Unfortunately, the Aussie has been unable to hold on and keep the momentum going as resurfacing worries over the US and China failing to reach a trade agreement. We open this morning back under 69c buying 0.6893 at the time of writing. We can expect to see initial support at 0.6850 on the downside followed by 0.6830. On the topside, a sustained move above 0.6957 (200 day EMA) will indicate some buying activity and if there is enough upside momentum then look to a rally towards 0.7000.

Locally, we will see the release of AIG Manufacturing Index, the index has been gaining ground and improved to 54.7 in September, pointing to expansion. Will the upward trend continue in October? In China, Manufacturing PMI will be out later today, this manufacturing indicator was slightly stronger in September than the official manufacturing PMI. The index registered 51.4, which indicated a slight expansion. The forecast for the October release is 51.0 points. Out of the US, there is a raft of employment and manufacturing data.

Key Movers

Yesterday, as expected the Bank of Japan left rates unchanged but did give a strong signal that they are likely to cut rates in the future. BOJ governor Haruhiko Kuroda said they still had room to take the already negative rates lower in order to prevent global uncertainties from damaging the Japanese economy. USD/JPY is lower on the week buying 108.03.

In other news, China’s manufacturing sector continued to dwell in the doldrums in October, with sentiment among factory operators remaining in negative territory for the sixth month in row. The manufacturing purchasing managers’ index (PMI) slipped below 49.8 in September to 49.3 in October, the figure was the lowest since hitting 49.2 in February. The non-manufacturing PMI, a gauge of sentiment in the services and construction sectors, came in at 52.8 in October down from September’s 53.7, dropping to its lowest level since February 2016.

The US Dollar index (DXY) was lower falling to 97.22 as reports made the news that Chinese officials are reluctant to commit to any long-term deal with President Donald Trump, whom they see as unreliable. US President Trump also tweeted about the Federal Reserve being too slow to cut and that the US dollar and interest rates were hurting US businesses whilst Germany, Japan and all others benefited: “China is not our problem, the Federal Reserve is!”

Expected Ranges

AUD/USD: 0.6850 - 0.6950 ▼

GBP/AUD: 1.8550 - 1.8900 ▼

AUD/NZD: 1.0660 - 1.0820 ▼

AUD/EUR: 0.6140 - 0.6210 ▼

AUD/CAD: 0.8980 - 0.9120 ▼