AUD range bound ahead of FOMC and key labour data
Wednesday 20 March, 2019
Daily Currency UpdateThe Australian dollar edged lower throughout trade on Tuesday, giving up 0.71 US cents to close marginally above intraday lows at 0.7186. Having edged higher through the last 7 days the AUD has struggled to extend gains beyond 0.71 as market movements remain largely muted, contained within relatively tight short-term ranges. Having touched 0.7108 early the AUD then bounced about a 10-point handle for much of the day before edging lower through European and North American trade.
Having bounced off lows at 0.7005 the AUD has struggled to gather any real upward momentum, edging higher on improved risk appetite and broader USD weakness. Attentions now turn to the US Federal Reserve Policy Meeting this evening for immediate short-term direction. A string of softer US data sets have supported the Fed’s recent dovish shift and markets will be keenly attuned to any rhetoric that hints to a significant extension of the current patient platform.
Today’s domestic docket remains free of headline data events and our focus turns to tomorrow’s labour market report. With RBA pinning increased importance on the health of the economies employment prospects a poor read could prompt calls for an RBA rate cut before H2 this year, while a strong read could stave off challengers to AUD upside and support a move above the current resistance handle and back toward 0.72.
Key MoversThe New Zealand dollar is slightly stronger this morning when valued against the Greenback. This week the Kiwi dollar continued to trade in a tight range around 0.6860. Overnight on the release front the GDT dairy price index rose by 1.9%, taking its gain since November to 26%, while whole milk powder prices rose by 4.0%, supported by a reduction in volumes owing to dry weather.
Looking ahead today in NZ it should be another quiet session. NZ current account data are expected to show a further expansion in the deficit.
From a technical perspective, the NZD/USD pair is currently trading at 0.6853. We continue to expect support to hold on moves approaching 0.6830 while now any upward push will likely meet resistance around 0.6880.
The Great British Pound traded sideways overnight in its usual, volatile fashion as Brexit remains in focus. Opening this morning at 1.3265 against the Greenback, Sterling did enjoy a marginal uptick as reports suggest EU leaders are planning to offer the UK a conditional extension at this week’s summit. Potentially this could give Prime Minister Theresa May one more chance to get her deal through Parliament.
UK labour market data was also released overnight and came in stronger than expected, also supporting the Pound. The 222k leap in employment drove the unemployment rate down to 3.9% and wages growth remaining at a decade high. The Bank of England has been hesitant to raise interest rates amid Brexit uncertainty, but this latest employment news may lead to heavy contemplation should any Brexit clarity come to light.
Moving into Wednesday, Brexit remains the key focus with UK Inflation numbers set to augment any movements.
The US dollar continues to trade sideways against other major currencies as market movements remain contained in anticipation of the FOMC release tomorrow morning. US Housing Market Index came back this morning slightly slower than the forecast of 63, at 62 in line with last month’s release.
Expectations for the Federal Reserve are that they will note weakness in recent economic data and maintain their line about being patient with future policy adjustments. Market reaction should be modest in line with these expectations. The rate decision is usually already priced into the market, so it tends to be overshadowed by the FOMC statement which is focused on the future. This rate is decided by FOMC members who vote on where to set the target rate.
The USD opened at 1.4107 against the AUD this morning.
The Euro continued to grind higher on Tuesday on the back of positive German data, the EUR/USD pushed higher touching 1.1361. The ZEW Indicator of Economic Sentiment for Germany recorded a strong increase of 9.8 points in March 2019, with the corresponding indicator climbing to a level of minus 3.6 points. Although the indicator is still below the long-term average of 22.2 points, the expectations for the medium-term economic development are less pessimistic than they were a month or two ago. The assessment of the current economic situation in Germany decreased again in March, falling by 3.9 points to a reading of 11.1 points compared to the previous month.
Looking ahead, low tier German PPI is due. Markets will be focusing on the Federal Reserve as they are set to announce their latest monetary policy decision and Chairman Jerome Powell will hold a press conference to announce the decision.
The Canadian dollar is weaker this morning when valued against the Greenback. The Canadian dollar slipped below last week's low of 1.3287. The fresh low marks the worst level since March 3 and it comes as oil prices rise again reaching a four-month high of $59.57.
On the release front yesterday, all eyes were on the budget release. The keys points Canadian Budget Assumes 1.8% Real GDP Growth In 2019, 3.4% Nominal GDP Growth In 2019. Looking ahead for next year Assumes 1.6% Real GDP Growth In 2020, 3.5% Nominal GDP Growth In 2020.
From a technical perspective, the USD/CAD pair is currently trading at 1.3319. We continue to expect support to hold on moves approaching 1.3240 while now any upward push will likely meet resistance around 1.3350.
- AUD/NZD: 1.0280 - 1.0380 ▼
- GBP/AUD: 1.8400 - 1.8850 ▼
- AUD/USD: 0.7040 - 0.7130 ▼
- AUD/EUR: 0.6220 - 0.6230 ▼
- AUD/CAD: 0.9380 - 0.9500 ▲