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Kiwi touches one-week low

By OFX

The NZD fell throughout yesterdays trading session to bottom out at a one week low of 0.68311, before opening at 0.68527 this morning. The NZD is the only currency in the G10 pool to fall against the USD overnight, despite a broadly weaker USD and positive news on the US-China trade relations. This is speculated to be technical-related rather than fundamental, as it has struggled to punch through the 0.6900 handle.

Manufacturing data released tomorrow by Business NZ is expected to provide a small impact to the Kiwi. It is a survey of manufacturers that asks it’s responders to rate their level of business conditions including data such as employment, production and inventories which can be a leading indicator of economic conditions. This announcement is scheduled for 08:30 AEST.

The Australian Dollar managed to hold its head above 72c vs the Greenback throughout Wednesday trading session. The AUD/USD pair didn’t react too much to outside influences and moved between a low of 0.7201 and a high of 0.7237. Locally we saw the release of Westpac Consumer Sentiment which edged up 0.1% in December to 104.4. This reading is comfortably above 100 indicating more consumers are optimistic than pessimistic. The consumer sentiment index has held above the 100 neutral level for 13 consecutive months.

Looking ahead we see the Melbourne Institute’s Inflation Expectations and the RBA bulletin.

On the technical front, 0.7250 is seen as first line of resistance and continues to be important from a technical stand point. Support is around 0.7190

The Great British Pound rallied through trade on Wednesday, bouncing back from 20-month lows despite conservative colleagues triggering a vote of no-confidence in a bid to oust Prime Minister May. Dropping to 1.2475 Sterling rallied as the PM delivered a stoic address, striking a defiant tone and warning MP’s they risk delaying and derailing Britain’s European exit. Early polls suggested the incumbent PM would shake of the leadership challenge and gather the 159 votes required to remain in office and as official numbers filtered in it became evident May would beat back key challengers and comfortably hold onto office. Having secured 200 of the possible 317 Conservative votes May buys herself another 12 months in the top job, with a comfortable majority staving off calls for her to resign.

Sterling’s near-term fate now returns to broader Brexit outcomes with a hard no-deal exit likely to foster a sustained period of weaker economic growth, weighing on BoE policy and prolonging a period of accommodative monetary policy.

With the leadership ballot behind us attentions now turn to ongoing Brexit negotiations as May returns to Brussels in a bid to negotiate an alternative solution to the Irish border backstop.

The USD rose against most other major currencies yesterday amongst positive reports on the US-China trade talks, except GBP as PM Theresa May survives the no-confidence vote resulting in a rally in the GBP.

Overnight the Wall Street Journal reported that China might revamp it’s Made in China 2025 Industrial policy and planning to allow greater access to its markets for foreign companies. This has been one of the sticking points in the US-China trade relations, as the US has accused China of intellectual property theft to achieve its goal of becoming a leader in advanced manufacturing by 2025. A change in direction from China would increase the chances of the two sides coming to a trade agreement. Furthermore, President Trump stated yesterday he would not raise tariffs on Chinese imports until they can decide whether they can reach a deal.

Just after midnight on Saturday, the Census Bureau will release it’s data on retail sales which will outline the change in the total value of sales at the retail level. This is a monthly release that is the primary gauge of consumer spending, which accounts for the majority of the overall economic activity.

The USD opened at 1.38621 against the AUD this morning.

The Euro rallied through trade on Wednesday pushing back through 1.1350 and testing a break above 1.1385/1.14. The single currency was buoyed by reports Italy had submitted a more favourable budget deficit proposal for 2019. The reduction to -2% of GDP triggered a fall in 10 year Italian bonds while helping bolster German bond yields in risk on trade.

Attentions now turn to today’s ECB policy meeting. Markets are priced for a dovish end of the current QE Facility, with some scope for the Euro to test moves beyond 1.14 and toward 1.15 if Draghi and the board proffer a balance assessment of future prospects. Beyond QE market focus turns to re-investment and an expectation for this to continue through 2020. Short Term Euro direction will be governed by the ECB’s forward guidance, any indication the bank’s reinvestment timeline extends less than two years maybe seen as hawkish and drive the single currency higher.

The USD/CAD traded within a tight range during Wednesday Asian and Early European session moving only between a high of 1.3395 and a low of 1.3368. As the North American session came underway the Canadian Dollar benefited from a drop in US inflation data, CPI was unchanged from a month earlier slowing from the 0.3% increase seen in October. Analysts had forecast a 0.1% increase. The Loonie touched a low of 1.3322 which was quickly reversed as local data overshadowed. Industrial capacity utilization rates for Canada were down to 82.6% from 84.1% in the previous quarter. The decrease in the third quarter was mainly attributed to declines in the manufacturing industries and saw the USD/CAD move back up around 1.3365

Data wise todays sees New Home Price Index which has not moved much in recent months. It was flat in the past two months and is projected to remain unchanged also in the upcoming report for October.

On the technical front, we see immediate resistance at 1.3390 followed by 1.3430 and supports sits at 1.3330 and 1.3290.