Australian recovery after strong employment figures undone by softening China
Friday 20 July, 2018
Daily Currency UpdateThe Australian Dollar opens this morning marginally lower than yesterdays’ open as commodity currencies under-performed in overnight trading. It was a wild ride for the Aussie, which initially saw very positive employment figures drive up its value to 0.7441, only for the American trading session to unwind those gains and then some. Changing hands this morning at 0.7357, the Aussie looks to tread water to close out the working week.
The big headline of the day was of course the 50.9k jobs that were added to the Australian economy. The news soundly beat all analyst expectations and saw the Australia Dollar appreciate significantly to 0.7441. From there it was a day to forget with the industrial metal prices reflecting slowing growth concerns in China. Copper fell 1.5%, taking its declines since the start of June to 17%. Zinc, Nickel and Lead prices also slid in the decidedly bearish market. Compounding, the commodity concerns was the softness of the Chinese Yuan which hit a new low for the year. Overall, the Aussie fell over 1.5% from its high at 0.7441.
Looking forward, the Aussie is set to enjoy a quiet domestic calendar to close out the week, a welcome environment considering the recent trading. Off-shore, risk-events are fairly limited with attentions mainly focused on the G20 summit kicking off today in Buenos Aires.
Key MoversThe New Zealand Dollar could not sustain movements above the 68 US cent handle, opening at 0.6795 yesterday morning as US Dollar strength continued its momentum. The US Dollar index (DXY) reached new highs overnight after a strong Philly Fed Manufacturing print and United States unemployment claims, causing the NZD/USD cross to fall steadily back to intraday lows of 0.6715.
A sharp spike higher though for the Kiwi occurred during the North American session as President Donald Trump in an interview with CNBC said that a stronger dollar “puts us at a disadvantage” and is currently unhappy with the current Federal Reserve monetary policy tightening.
The Kiwi rebounded to 0.6760 following Trumps comments before drifting lower on open this morning to 0.6745. With only Visitor arrival numbers released domestically this morning, markets will look towards G20 meetings in Buenos Aires this weekend for further stance on simmering trade tensions.
The Great British Pound began to descend the early European session dropping through psychological level of 1.3000 against the Greenback down to 1.2957 on decreasing hopes for a August rate hike. Adding fuel to the fire was an unexpected 0.5% drop in Retail Sales for the month of June as temporary weather-related factors eased. Once the US markets opened and Trump spoke in an interview with CNBC the Cable bounced from ten-month lows back above 1.3. He said “I’m not happy about it”, referring to the Fed hiking rates, he claims that “higher rates put us at a disadvantage”.
Among the Sterling crosses, the GBP/USD has been the hardest hit mainly because the US Dollar strengthening. We are now more than likely to see another two rate hikes in the States this year and maybe a couple early next. Which is quite the opposite in the UK with expectations moving further away.
Looking ahead, today we see Public Sector Net Borrowing. Borrowing by the government has been OK last time, with 3.4 billion pounds. It is expected to broaden to 3.7 billion this time. Higher government lending is negative for the pound.
Having touched 12-month highs the U.S Dollar index moved sharply lower following President Trumps proclamation of concern regarding the strong performance of the world’s base currency. Trump suggested the “strong currency was putting the United States at a disadvantage, making our exports more expensive”. The comments forced the Dollar downward against Yen touching 1-week lows while the Euro bounced back through 1.16 advancing some 100 points having touched intraday lows at 1.1576.
This is not the first time Trump has voiced his displeasure with the strength of the US Dollar however his attack on the Federal Reserve and its policy of monetary policy tightening, a core driver of recent USD strength, raising concerns as to the independence of the Federal Reserve. Having fallen 1 tenth of a present the dollar correction was largely contained as investors assessed the likelihood the President would weigh in and disrupt the sovereignty of the FOMC and Federal Reserve, however Trump’s comments add another variable that needs to be considered when assessing long term expectations.
Attentions remain squarely fixed on political pressures with little macroeconomic data on hand to drive broader direction into the close.
The EURUSD ended the session slightly higher at 1.1642 after being down more than 0.60%, below the important 1.16 level, at 1.1575. It was all USD strength that followed through the Asian session on some risky Headlines coming from China plus the continuation of CNH depreciation and then the strong US Jobless numbers.
Enter Trump. Someone released some Headlines from an interview with the US President, that’ll be released later today, stating that he was “not thrilled” about the FED hiking rates and the subsequent USD strength against the Euro, and the Chinese currency.
Euro jumped more than 0.6% to 1.1678 on the news before reversing gains and settling below 1.1650. We’ll close the week with German PPI.
Levels to watch, in the short term, we should focus on Yesterday’s high/low 1.1575/1.1678
The loonie couldn’t capitalise on the Trump Headlines and the subsequent USD correction, ending the session 0.8% weaker with USDCAD closing above the important 1.3250 level at 1.3273.
Recent NAFTA Headlines signalling the US might be keen to negotiate the agreement first with Mexico haven’t been CAD supportive but the USDCAD was still trading below 1.32 during the Asian session.
As the European session started with UK missing on Retail sales data and CNH continuous weakening, the USD gained momentum. The CAD was then pressured downward following US Auto tariffs prospects and a weak ADP Canadian employment report (-10.5k jobs in June). USDCAD reached a new month high at 1.3290 before correcting slightly to 1.3273 after Trump headlines.
- AUD/NZD: 1.7570 - 1.7900 ▲
- GBP/AUD: 1.7570 - 1.7900 ▲
- AUD/USD: 0.7300 - 0.7400 ▼
- AUD/EUR: 0.6280 - 0.6350 ▼
- AUD/CAD: 0.9700 - 0.9800 ▼