Aussie wobbles on open following reports of increased Tariffs on Chinese Exports
Wednesday 11 July, 2018
Daily Currency UpdateHaving held onto gains through much of Tuesday the Australian Dollar moved sharply lower this morning when valued against the US Dollar following reports the US would release/impose an additional $200bn in tariffs on Chinese exports. The AUD/USD pair plunged 50 points, tumbling from 0.7475 to 24hr lows at 0.7425 while suffering a punishing sell off against the JPY as risk appetite evaporated. Yesterday the NAB´s Business Confidence index fell in June to 6 from a downwardly revised 7, missing expectations of 8. The index on Business Conditions remained unchanged at 15, below market's forecast of 18. The soft print had a muted impact on AUD value as broader direction continues to be dominated by the escalating trade war and its subsequent impact on markets appetite for risk. Today’s domestic docket will see the release of both the Westpac Consumer Confidence index for July at 10.30am and housing finance data for May at 11.30am with loans to owner-occupiers expected to fall by 2%. The mid-level data is expected to have little impact on broader AUD values as attentions turn to China and the anticipated response to increased US tariffs. At time of writing the aussie currently buys 0.7424 U. S cents.
Key MoversThe New Zealand Dollar still holds above 68c at 0.6819 against the U.S dollar at the time of writing. The NZD/USD see-sawed through yesterdays trading session, first advancing to touch a high of 0.6857 during Asian trade, followed by a low of 0.6806. As the European session kicked into full swing and US markets began their day the NZD advanced towards 0.6842 however, all gains were quickly wiped at first light this morning on news that the Trump administration was planning to publish a list of new tariffs to be imposed $200 billion worth of Chinese goods. Risk aversion kicked in with trade concerns firmly back to the centre of the market radar. Local data realised confirmed a weak Q2 for retail card spending with June increase of 0.8% m/m in June following an upwardly revised 0.6% m/m lift in May. Q2 consumer spending was impacted by a very weak April print. On a quarterly basis, the pace of growth is sitting at -0.2% q/q. Data wise quiet locally but offshore we see US PPI ahead of the closely watched US CPI release on Thursday. On the technical front, support sits around 0.6800 followed by 0.6780, meanwhile on the upside resistance at 0.6830 and 0.6860.
The Great British Pound edged higher through trade on Tuesday bouncing off intraday lows at 1.3225. Having gapped lower on Monday’s open following the shock resignations of Boris Johnson and David Davis the Pound found support and crept back toward 1.33, however investors appeared reluctant to extend the recovery ahead of today’s all-important GDP print and broader political instability. While the political tumult continues to weigh on broader sentiment, the possibility of an uptick across key macroeconomic indicators and a firming of expectations supporting an August rate hike have helped slow the sell off. Supported on moves approaching 1.3180-1.32 attentions now turn to a crowded macroeconomic docket for short term direction. Monthly GDP and Manufacturing Production data headline the ticket with Goods Trade Balance, Construction Output and Industrial production all providing lines to gauge the health of the broader economy. Upside reads will support calls the sluggish start to 2018 is turning, supporting an august monetary policy amendment and perhaps enabling the GBP to extend back beyond 1.33 and 1.3350.
The US Dollar regained its upward momentum on Tuesday as we saw the USD/JPY cross rally, with investors moving out of safe haven assets and turning towards higher risk currencies. Initially opening at 110.80 against the Japanese Yen, movements were steady into the European session and saw an intraday day high of 111.35 as both equities and bond yields traded higher. Eventual gains were all lost into this morning as a report by Bloomberg took hold that the US administration was close to releasing a list this week of a further $200bn worth of tariffs on Chinese imports. USD/JPY sits square on 110.80 this morning. Small business optimism in the United States was at its sixth highest reading in survey history of forty-five years as employment gains remain strong with small businesses across the country. This evenings CPI will be this week’s key data release which is expected to remain relatively unchanged at 0.2% for the month of June.
It was a volatile session for the Euro, EURUSD dropped towards the 1.17 support level earlier in the London session, following much weaker than expected German ZEW Survey numbers for current and expected business conditions (the expected conditions dropped reached levels not seen since 2013. France Industrial production had already missed estimates earlier coming at -0.9% (versus +0.4% expected). EURUSD dropped to a session low of 1.1693 before recovering all the way back to 1.1750 on broad USD weakness. Asia is now opening with EURUSD trading around 1.1740, with the common currency reacting fairly well to the potential release of a US tariff list on $200BN Chinese goods. Short-term levels to watch are 1.1720 support and 1.1767 resistance.
The USDCAD had a volatile session Yesterday, the USD recovered from the 1.31 lows versus the CAD, trading to a session high of 1.3146 but the loonie recovered all the lost ground after upbeat Canadian housing data. Housing starts came at 248k (vs 210k expected) and building permits for May rose 4.7% (versus 0% expected and -4.6% last month). The USDCAD dropped on the housing data and probabilities for a rate hike tonight spiking to 100%, USDCAD reached a new session low at 1.3103 but gave up almost all of the recovered ground after Headlines announced Trump is preparing to release a list of additional $200bn in Chinese products to be hit with tariffs. Short-term levels to watch are the high and lows of Today’s session at 1.3146 and 1.3103 respectively.
- AUD/NZD: 1.7680 - 1.8030 ▼
- GBP/AUD: 1.7680 - 1.8030 ▲
- AUD/USD: 0.7380 - 0.7480 ▼
- AUD/EUR: 0.6310 - 0.6380 ▼
- AUD/CAD: 0.9710 - 0.9830 ▼