Home Daily Commentaries Aussie sees its biggest weekly gain in 14-months

Aussie sees its biggest weekly gain in 14-months

Daily Currency Update

The Australian Dollar posted a 3-week high on Friday against its US counterpart defying all odds the pair would tumble in an environment of escalating trade war tensions between the United States and China. The local unit has seen its biggest weekly advance in 14 months and moved 2.26% higher from lows of 0.7141 to a high of 0.7303.

There was no local economic data releases however Standard and Poors upgraded its outlook in Australia AAA credit rating to “stable” from negative on Friday, providing the Aussie with a further lift. The move comes on the back of an earlier than expected return to surplus, record employment growth, spending restraint and an "orderly unwind" of the Sydney and Melbourne housing market.

Looking ahead, it’s a quiet week locally for macro-economic releases and therefore the Aussie will take directions from offshore events including further trade developments.

Key Movers

On Friday, the New Zealand dollar traded in a tight trading range, meeting some resistance just shy of 0.67, and closing the week around 0.6680. On the data front last week visitor arrivals were up 12,700 to 246,700. The biggest changes were in arrivals from: Australia (up 3,100) China (up 2,300) Malaysia (up 1,200). Credit Card Spending rose 7.7%.

The start of the week looks very quiet on the macroeconomic calendar. All kicking off on Wednesday with the release of Trade Balance and ANZ Business Confidence. On Thursday, all eyes will be on the Reserve Bank of New Zealand (RBNZ) Monetary Policy Statement which is expected to leave interest rates on hold at 1.75%.

From a technical perspective, the NZD/USD pair is currently trading at 0.6674. We continue to expect support to hold on moves approaching 0.6646 while now any upward push will likely meet resistance around 0.6727.

The cable started the week strongly last week as we saw strong domestic inflation numbers and retail sales come in above market expectations and markets remaining calm on the US-China trade war. The positive sentiment was short-lived through as the sterling plummeted during Friday’s European session after comments from British Prime Minister Theresa May proclaimed the European Union must supply an alternative Brexit proposal after a continued lack of progress during the Salzburg Summit. The pound shed 1.5% against the greenback to touch 1.3070, representing its biggest daily loss since June 2017.

Looking forward, it is shaping up as a busy week for the Sterling, with Brexit to remain front and Centre with negotiations between the EU’s Michel Barnier and the UK Brexit Secretary Dominic Raab set to continue. We also have further data due out of the domestic economy in the form of UK Q2 GDP with markets expecting 0.4$ QoQ and 1.3% YoY growth. This read will be closely watched after last weeks strong beats in inflation and retail sales data. We also have commentary from the Bank of England due throughout the week with the bank unlikely to release rates in the near term despite rising inflation and upbeat economic indicators.

On the technical front we see new GBP/USD supports at 1.3050 before 1.3000 with topside resistance firstly at 1.3082 and 1.3144.

The Greenback fell across the board on Thursday as a resurgence in global risk appetite after the United States and China announced new import tariffs this week that were less harsh than expected curbed safe-haven demand for the US. dollar.

Yesterday on the data front US unemployment claims fell to 201K for the week ended September 14, the lowest since November 1969 and better than the 210K expected. The Philly Fed Manufacturing Index for September jumped to 22.9, almost doubling August 11.9 and well above the 17.0 expected. Existing Home Sales were flat in August vs. an expected increase of 0.3%.

Looking ahead today and we will see the release of Flash Manufacturing PMI, forecast 55.1, above 50.0 indicates industry expansion.

The Euro continued its upward trajectory into Friday after hitting a weekly high of 1.1802 and its highest level since June 14th. Trading higher following a bout of greenback weakness, risk appetite continued to improve as US trade war tensions eased.

EUR/USD rallies stalled at the 1.18 handle following softer than expected headlines on Flash Manufacturing services in the Eurozone along with output growth in France ,softening to a 21-month low in September.

This week’s drivers for the pair will be this month’s Federal reserve meeting on Thursday whereby it is widely expected a further interest rate hike of 0.25% is on the cards. ECB President Mario Draghi speaks this evening before the European Parliament economic and monetary affairs committee in Brussels. Further clues could be seen in Draghi’s speech over potential rate hikes in 2019 as ECB is on course to unwind QE in December 2018.

The Euro settled at the close on Friday at 1.1750 and opens this morning at 1.1745.

The Canadian Dollar opens this morning at 1.2921 vs the Greenback and has held its head just above the 1.29 handle for now. The pair moved within a 50-pip range on Friday as we saw the release of local CPI and Retails Sales.

CPI reportedly dipped to 2.8% in August however, it has remained above the Bank of Canada’s target for the seventh consecutive month which has boosted expectations the Bank of Canada will again raise rates in October. Core-inflation prices rose in a range from +2.0% to +2.2%, based on the three preferred gauges used by the BoC. Market expectations of an interest rate hike in October, as reflected in the overnight index swaps market, rose to 88.74 percent from 84.46 percent before the release of the inflation data. The Bank has raised rates 4 times since July 2017 and maintains a 2% target inflation.

Meanwhile Retail Sales climbed 0.3 percent in July following a decline in June, led by demand for food and higher gas prices.

Looking ahead today sees the release Wholesale Sales which is expected at 0.4%.

Expected Ranges

  • AUD/NZD: 1.0730 - 1.0970 ▼
  • GBP/AUD: 1.7880 - 1.8140 ▼
  • AUD/USD: 0.7200 - 0.7310 ▲
  • AUD/EUR: 0.6090 - 0.6230 ▼
  • AUD/CAD: 0.9320 - 0.9440 ▲