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Kiwi fails to hold on to 66c

By OFX

The New Zealand Dollar seesawed it way through Tuesday’s day of trade, having initially opened at 0.6619, the Kiwi came under pressure touching 0.6592 on the back of NZIER Business confidence which reported a drop in the third quarter to its lowest level in nine years. The survey showed 30% of firms surveyed expected dire business conditions in NZ over the next year. The survey shows firms are worried about Government policy, labour costs and availability of labour operating margins, showing these factors were key considerations for businesses when it came to assessing general economic conditions.

The Kiwi managed to claw back losses as the day went on but unfortunately, the Greenback overshadowed and pulled the NZD back down to 0.6575 in the early European session touching a two-week low.

The Kiwi was unable to break 66c as the latest Global Dairy Trade (GDT) auction revealed the downtrend continues concluding with the GDT Price Index down 1.9% on the previous sale. The average price was US$2,901 a tonne, compared with US$2,934 a tonne two weeks ago. Some 41,981 tonnes of product was sold, up from 39,143 tonnes two weeks ago. Whole milk powder fell 1.2 % to US$2,753 a tonne.

Looking ahead today sees the release of ANZ commodity Prices.

The Aussie fell overnight as markets embraced a more risk averse attitude with concerns regarding the evolving situation in Italy front of mind for traders. AUD/USD was initially unmoved by the RBA rate announcements but the risk-off mood late in the Sydney and into the European session forced the pair lower to 0.7185.

Tuesday’s RBA monetary policy meeting did nothing to surprise to markets with the central bank opting to keep rates on hold for the 24th consecutive meeting. The accompanying language was largely unchanged from the September meeting with growth projections still locked in at a touch over 3% and expectations that we will begin to see an uptick in inflation in 2019 and 2020. The RBA also remained upbeat on employment, noting that the unemployment rate is trending lower and has fallen to an almost 6-year low at 5.3%. In terms of future monetary policy direction into the future, markets are now pricing a 40% probability of a rate hike by the end of 2019.

Wednesday’s data calendar is relatively light with only building approvals and the Ai Group Performance of Services index in Australia however later in the day we will have a raft of PMI reports due out which could drive direction. Markets will also be keeping a close eye on Turkeys September CPI read given the concerns still emanating from emerging markets.

From a technical perspective, we see AUD/USD resistance at 0.7250 whilst the pair seems relatively well supported at the 0.7160 handle.

The Great British Pound dipped lower during the local trade as a risk off tone in the Eurozone ensured cable drifted below support levels at 1.30. Opening the morning at 1.3050, Nationwide house prices saw steady growth for the month of September with an annualized reading of 2%. Sterling moved little from the result.

Investors saw a sell off following a disappointing read on Construction output with the rate of expansion decreasing for the second month in a row from 52.9 to 52.1.

Both a downturn in the FTSE 100 and uncertainty in Brexit negotiations as sentiment in the financial market dampens saw the GBP/USD pair hit intraday lows of 1.2945. Technical support levels remain at the 1.2900 handle as the market looks towards this evenings release of Services PMI in the UK.

The US Dollar Index (DXY) saw small gains of 0.2% against a basket of currencies, opening this morning at 95.48. Initial rallies were seen as high as 95.75 and a 0.6% gain from yesterday’s open as equity prices were lifted by the news of the USCMA agreement between the US, Mexico and Canada in trade negotiations.

US Federal Reserve chairman Jerome Powell in his speech in Boston overnight remained positive at the outlook of the United States economy, as the Fed looks to continue its gradual interest rate normalisation, while balancing current domestic expansion. There was little news for investors to take away from which is already priced into the markets of a 75% chance of one more interest rate hike by year end.

While Jerome Powell remarked of maintaining maximum employment , this evening sees the release of ADP non employment change and a number of key FOMC members are due to speak this evening.

The Euro downturn continued through trade on Tuesday touching six week lows as the war of words between Italy and the wider European community escalated. The 19 nation combined unit fell through 1.1550 to touch intraday lows at 1.1507 following comments from a senior Italian lawmaker suggesting Italian debt issues could be resolved should it roll back the Euro and adopt a national currency. The comments compound concerns surrounding the unity of the wider eurozone and ensures headline risk remains a driving force governing broader Euro direction.

Having touched six week lows the 19 nation combined unit found support following Prime Minister Conte’s denouncement of the comments and confirmation the Euro was “un-renounceable”. The Euro remains largely well supported on moves approaching 1.15, a key technical retracement marker; However, a move and extension of recent downside could prompt a deeper correction and opens the door for moves toward 1.13.

Attentions remain affixed to political developments as macroeconomic indicators take a back seat and headline risk drives direction.

The Loonie remains relatively flat against its US counterpart, opening this morning at 0.7798. The initial drivers of Canadian Dollar strength were felt earlier in the week with the re-negotiated NAFTA and appreciation in the price of oil being the main catalysts. There was little significant fundamental data on Tuesday to move the CAD in either direction.

There was some news from south of the border however with FOMC chair Jerome Powell delivering a speech in Boston. Powell’s speech reiterated the case for gradual rate hikes in the US which will allow them to “balance the inevitable risks that come with extraordinary times, so as to extend the current expansion, while maintaining maximum employment and low and stable inflation”. The market had a mixed reaction to the speech as the interest rate appreciation was duly noted but was also peppered with warnings.

The Loonie also found little support from the mostly bullish crude oil market with a day of flat movement.

Moving into Wednesday, the Canadian Dollar enjoys another quiet day on the domestic calendar. Attentions now turn to the United States with a few Fed speeches lined up, as well as PMI readings and employment figures.