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Remains resilient despite risk-off tone

By OFX

Risk-off sentiment prevailed in overnight markets, pushing the USD and JPY higher against a number of currencies. Against this backdrop, the New Zealand Dollar remained fairly resilient, sliding only marginally downwards. Opening this morning at 0.6538 the Kiwi was mostly spared of following the Chinese Yuan lower and remains well supported moving into the end of the week.

Global markets roiled overnight with a smorgasbord of headlines driving riskier assets south. In Europe, the European Commission set a notice to Italy about their proposed Italian budget, potentially signalling a line in the sand. Across the channel, Brexit discussions have reached an impasse with UK PM May struggling to break the deadlock amidst internal disputes.

Over in the US, 10-year treasury bonds shot up 3-4 BPS and the Treasury released their currency report. While the Treasury fell short of naming China a currency manipulator, Trump did comment that China has failed to intervene in the recent depreciation of the CNY like China has done in the past. Ironically, the trade tariffs Trump had implemented was the reason for the declining fortunes of the CNY. Amidst this context the Kiwi remains fairly resilient despite the outlook of its biggest trade partner, China.

Moving into the close of the week, the New Zealand Dollar turns again off-shore with Chinese GDP data to digest.

The AUD/USD pair reached a weekly low of 0.7096 by the end of the US session as risk aversion took over the market. US equities fell for a second straight day, with the selloff accelerating overnight as markets continued to assess whether the US Federal Reserve will tighten monetary policy at a faster rate than expected.

On the local data front yesterday Australian employment report for the month of September showed the economy added a total of 5.6K new jobs, missing the market's expectations of 15.0K. However, full-time employment was up by 20.3K, with a decline in part-time jobs. Australia’s unemployment rate fell to the lowest since April 2012, printing 5.0% vs. the previous 5.3%, with the participation rate down to 65.4% from 65.7%. There are no scheduled releases for today.

From a technical perspective, the AUD/USD pair is currently trading at 0.7097. We continue to expect support to hold on moves approaching 0.7085 while now any upward push will likely meet resistance around 0.7130.

The Great British Pound edged lower through trade on Thursday falling through 1.31 as tensions surrounding a workable Irish Border solution escalate. Prime Minister May fuelled Brexit doubters declaring the EU proposal for the Irish border untenable. Falling through 1.31 and 1.3050 the pound touched 10-day lows at 1.3020 as investors’ confidence a compromise will be found wanes.

Cable remains at the mercy of headline risk and volatility, fluctuating on expectations a divorce deal will be struck in due course. While optimism surrounding the current summit has all but evaporated there is still hope an agreement will present itself before the March deadline. Until then we expect sterling upside to be muted with investors wary of extending gains ahead of definitive evidence a hard Brexit will be avoided.

Attentions today remain with the ongoing EU summit and any signal negotiators are closing the gap in demands.

The US Dollar Currency Index (DXY) continued its bullish run this week climbing a further 0.35% overnight as it extends its legs to test the 96.00 handle overnight for the first time since October 10th.

Driven by the bullish release in the latest federal reserve meeting minutes on Thursday, the Philly Fed Manufacturing Index was also strong as regional manufacturing activity continued to grow in October. Despite being slightly weaker than the September reading of 22.9, the reading showed the factory sector is steady and has been uplifted this year by fiscal stimulus.

United States unemployment claims dropped to 210,000 for the week, a decrease of 5,000 for the week ended October 13th. Claims continues to fall to levels not seen since 1973.

With equities down across the board, USD/JPY fell overnight from weekly highs of 112.73 to 112.18 as investors moved back into safe havens assets with volatility continuing to be seen on Wall St.

On Wednesday the Greenback strengthened against all of its major rivals with the EUR/USD reaching a low of 1.1496 on the back of a combination of softer local equities and undermined by ongoing political tensions.

On the data front yesterday EU annual CPI was confirmed at 2.1% in September as expected, although the core reading printed 0.9% vs. the expected 1.0%. EU Construction Output was mixed in August, down 0.5% monthly basis, but up 2.5% from a year earlier. Looking ahead today and the EU calendar will be quite scarce, with only Germany publishing the Wholesale Price Index for September.

From a technical perspective, the AUD/USD pair is currently trading at 0.7107. We continue to expect support to hold on moves approaching 1.1490 while now any upward push will likely meet resistance around 1.1520.

The Canadian Dollar continued to extend its losses against the Greenback on Thursday, the USD/CAD rate moved from the low 1.3’s to finish the North America Session at 1.3083. Towards the end of the European session the pair did see a brief drop as crude oil extended its slide which hurt demand for the U.S dollar. Once the NA session got underway, the pair managed to recoup losses and rallied to a 3-week high.

In economic news, employment in Canada increased by 28,800 jobs from August to September according to the September ADP data. Despite the postie data, the Loonie struggled to make a recovery.

Tonight Canada is set to produce it’s retails sales and Inflation numbers. Next week The Bank of Canada will be a market mover. A hike is virtually a sure thing at this point but the market will be watching for signals on what's coming next. The BOC has said it plans for gradual hikes but they also talked about stepping up the pace at the most recent meeting. Any further hint on that front could lift the Canadian dollar. The BOC may also weigh in on what the new NAFTA agreement means.