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Kiwi gains on broad USD weakness

By OFX

The NZD benefitted from USD weakness overnight as the USD fell sharply during the US session as positive news on the trade front filtered through to markets. NZD/USD jumped from 0.6503 in early London trade to touch highs of 0.6566 representing a near 0.5% advance on the day. The article from the WSJ reported US treasury officials had invited Chinese officials to meet in the coming weeks for trade talks with the news pushing the CNH 0.7% higher on the day and taking the AUD and NZD along for the ride. AUD/NZD also rose from 1.0900 to 1.0944.

A quiet day on the data front for the NZD with only second tier data due. We have REINZ house prices and Aug food prices out with the REINZ of particular interest as the Reserve bank will be watching it closely for further signs of cooling in the domestic economy. 11:30am Sydney time we have the Australian August jobs report due out; historically a volatile release, any surprises could see NZD relevant reactions especially in the AUD/NZD cross.

On the technical front, NZD/USD is still well supported at the 0.6500 handle with any topside moves expected first resistance at 0.6566 (overnight high) before 0.6585.

The Australian Dollar traded within a tight range for much of Wednesday with little to drive direction on the economic calendar. Wednesday mostly continued the running narrative of the week with trade-concerns continuing to dominate market sentiment. However, sentiment quickly shifted later in the day on reports that US Treasury Secretary Steve Mnuchin has invited China to attend trade talks. Opening this morning at 0.7173 the Aussie moves into Thursday looking its’ healthiest all week.

In what proved to be a watchful day for the Aussie, there was some news that truncated the day. The Westpac Consumer Sentiment report was released early in the Asian session with a disappointing -3% result, highlighting the falling confidence in market conditions that is reverberating around the globe. The uncertainty from the US-China trade dispute continues to put a dampening effect on most currency markets. There was however some hope of reconciliation in the market with reports that the US Treasury Secretary, Steve Mnuchin is willing to reopen trade discussions. While expectations of a breakthrough are limited, considering the numerous talks previously, the Aussie immediately jumped on the news, rising an impressive 40 points to trade at this mornings’ open.

The Aussie now turns its attention to employment figures slated for release this morning and CPI numbers due for release later in the day. The focus will also remain fixed on the headlines.

The Great British Pound edged higher on Wednesday against the U.S. Dollar as a rise in optimism over prospects for a Brexit trade deal with the European Union. The Pound Sterling hit an overnight high of 1.3079. European Commission head Jean-Claude Juncker on Wednesday also renewed a pledge of close trade and security ties with Britain post-Brexit, helping lift sentiment.

Looking ahead today the Bank of England meets for its monetary policy meeting, at which it is expected to keep rates on hold at 0.75%.

From a technical perspective, the USD/GBP pair is currently trading at 1.3047. We continue to expect support to hold on moves approaching 1.3020 while now any upward push will likely meet resistance around 1.3095.

The United States Dollar Index (DXY) moved marginally lower against a basket of currencies after another, mostly benign day on the economic calendar. There was however quite a few headlines to contend with which drove market sentiment throughout the day. The DXY opens this morning at 94.81, a 0.4% loss on the previous day after trade discussions appear to be back on the table.

Again, uncertainty dominated market sentiment for most of the day with trade concerns continuing to be the primary driver in currency markets. The implications of a protracted trade dispute have begun to permeate within the media with companies like Ford and Apple outlining how the trade tensions would affect their business’. Ultimately the stark reality of what President Trumps trade policy shift could look like has rattled markets as a reconciliation looks far away. It also wasn’t helped with the Presidents recent escalation of the trade conflict, threatening a further $267bn worth of tariffs. The market did, however have a glimmer of hope with US Treasury Secretary Steve Mnuchin inviting China to re-open trade talks. Mnuchin, known as a moderate within the Whitehouse, isn’t expected to have any major breakthroughs as previous discussions have proved ineffective. Nevertheless, the news bolstered emerging markets and commodity currencies.

Fed Governor Brainard, a key member of the FOMC also spoke overnight. Interestingly, she echoed comments from other members of the FOMC that monetary policy may need to move faster and into restrictive territory. She warned of imbalances in the yield curve but ultimately the market interpreted her speech to suggest the Fed intends to tighten more than the market currently prices.

Closing out an action-packed day was a small decline in US Producer Prices with their first drop in 1.5 years to -0.1%. Led by declines in food prices and a range of trade services, the Greenback weakened slightly on the news.

Moving into Thursday, attentions remain affixed to the headlines and the CPI report due later in the day.

Despite weaker-than-expected Eurozone Industrial Production the Euro advanced against the U.S Dollar moving from intraday lows of 1.1570 to highs of 1.1649. The data showed fresh evidence of weakness within the Eurozone economy the -0.8% contraction in production on the month could have put significant pressure on the Euro. Alas, the pair is being supported in a risk-on environment and is currently trading at 1.1627 at the time of writing.

Looking ahead there is a slew of economic data today, German Final CPI - the preliminary estimate for August stood at a monthly increase of 0.1%. The final measure will likely confirm it. Any change in the German number will impact the all-European final figure due int he following week. French Final CPI - the second-largest economy in Europe saw an increase of 0.5% m/m in August according to the initial read. Also here, it will likely be confirmed. The closely watched Euro-zone rate decision. The European Central Bank reduces its bond-buying scheme at the end of the month to €15 billion from €30 billion so far. It intends to end purchases at the end of the year. Draghi and co. are unlikely to make any announcements. However, the recent drop in inflation and trade concerns may push them to paint a more dovish picture. In addition to the tone of the presser, the ECB releases new staff forecasts in this meeting. Any upgrade or downgrade of inflation and growth forecasts may be indicative of the next moves by the central bank. No big changes are on the cards. If Draghi says that downside risks have increased, it could be more meaningful.

On the technical side first line of support sits at 1.1600 followed by 1.1572. On the upside, we see resistance at 1.1630 and 1.1654.

The Canadian Dollar fell against a basket of other currencies on Wednesday. The USD/CAD pair fell a 24-hour low of 1.2980 the lowest level since August 31. The loonie is being supported by higher crude oil prices, NAFTA expectations and today, particularly by a weaker US dollar.

On the local data front today we will see the only release New Housing Price Index (NHPI) for the month of August. New home prices are expected to increase again in August by 0.1%.

From a technical perspective, the USD/CAD pair is currently trading at 1.2996. We continue to expect support to hold on moves approaching 1.2980 while now any upward push will likely meet resistance around 1.3020.