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Kiwi soars 0.9% after positive CPI reading

By OFX

The New Zealand Dollar, also affectionately known as the Kiwi, rose 0.9% from this time yesterday after a stronger than expected CPI reading. Opening this morning at 0.6788, the New Zealand Dollar failed to breach 0.68 but certainly tested the level.

The CPI reading wasn’t all positive with headline inflation posting softer numbers, as expected. The critical key core measures however showed higher inflationary pressure despite the core inflation estimate remaining un-changed at 1.7%. This supporting evidence of underlying inflationary pressures buoyed the Kiwi through the session.

Moving into Thursday, the New Zealand Dollar enjoys a relatively quiet day on the economic calendar with all eyes on Australian labour figures for direction.

The Australian Dollar clung on to short term supports through trade on Wednesday bouncing back through 0.7140 despite a downturn in market sentiment driven by equities and US yields. The AUD largely resisted the broader souring of risk appetite, ignoring the sell of in commodities and equity market uncertainty to bounce off intraday lows at0.7118 and push back toward key technical supports at 0.7142. With little domestic data on hand to drive direction the AUD was largely at the mercy of wider global trends and equity flows as investors appeared content to sit back and restore recent ranges ahead of today’s employment report.

Labour Market data for December is due this morning with analyst estimating a modest rise in total employment with 18,000 new roles created, while revisions to November data sets are expected to show true job creation numbers jumped to 37,000, bolstering the pace of jobs growth through H2 2018 to 2.9%. We anticipate labour market performance to remain strong through the short term but note the distinct lack of a flow on into wage and price pressures and until we see an uptick in these key underlying indicators there is very little incentive for the RBA to move away from its current policy setting; in fact, persistent softness coupled with a downturn in GDP could amplify calls for a rate cut and weigh on the AUD through H1 this year.

The Great British Pound was bid higher overnight as reduced risks of a no-deal Brexit buoyed the Sterling. The Pound reached as high as 1.3080 against its US counterpart, its’ highest level since early November, before moderating its gains to open this morning at 1.3066.

Again, Brexit proceedings dominated market direction with the Sterling responding positively to fresh parliamentary reports. There are signs that the labour party are increasingly likely to support a proposal to extend the 29th of March Brexit deadline to avoid a no-deal exit. Pro-Brexit trade Secretary Fox also hinted that he could live with a short extension, supporting the drive for the deferment. The EU are reportedly also open to an extension which adds further impetus to the idea. The crucial aspect to on-going discussions however is the almost bi-partisan resolve to avoid a no-deal Brexit which has helped the Sterling move higher as the risks of no-deal fade.

Moving forward, the Sterling again looks to on-going Brexit headlines for direction as well as some PMI data in Europe. The ECB is also set to release their refinancing rate and hold a press conference.

The USD is down against the AUD during yesterday’s trading session to open at 1.4002 this morning, holding against the resistance floor of 1.4. The reason for the drop can be owing to a stronger expected AUD with major releases coming out later today. The Richmond Manufacturing Index released this morning also came back at a figure less than 0, at -2. This indicates that conditions, while improving on previous figure of -8 are improving, but are still not ideal for the region.

While the world awaits the United States decision on the trade war and the government shutdown, the USD sees a sleuth of data releases tomorrow that are expected to have impacts on the greenback. Global financial firm Markit and the Energy Information Administration will be releasing their data on PMI (Purchasing Manufacturing Industry) and Natural Gas Storage and Crude Oil Inventories respectively. Any figures above their forecasts are expected to be good for the currency.

The Euro Dollar hovered between 1.1345 and 1.1394 on Wednesday and any moves higher have been capped ahead of the ECB meeting today. The range for the week so far is only about 59 pips from the low to the high so we could expect to see a move outside of this narrow range. Eurozone Consumer Confidence had little impact, numbers showed confidence rose in January to -7.9 from a -8.3 in December.

As mentioned, today sees the ECB President Mario Draghi’s interest rate decision, it is widely expected to announce no new changes to its policy however, Draghi may deliver in his press conference a dovish tone amid recent weakness in German and Chinese data along with ongoing Brexit uncertainties.

From a technical perspective the pair has been sitting above a long-term support of 1.1300 which is a level to watch on the downside. On the upside 1.1390 is facing resistance followed by 1.1450

The Canadian dollar fell through trade on Wednesday following a softer than anticipated retail sales print and an uptick in dovish rhetoric from the Bank of Canada. Retail sales fell sharply in November comfortable missing market estimates as consumers reigned in their spending ahead of the holiday period forcing the CAD back below 0.75 US cents. Bank of Canada Governor Stephen Poloz then added further pain to the already beleaguered Loonie affirming the bank has shifted to a data dependent platform for policy change. Concerns surrounding a weakening housing market, lower oil prices and persistent global trade tensions loom over the BoC’s decision making processes and offer little incentive to tighten rates in the near term, forcing investors to push back expectations for monetary policy adjustment.

The CAD has now all but given up the gains it enjoys through the first two weeks of the year as markets reposition their expectations for BOC interest rate hikes, pushing bets back from March/April into the second half of the year. With little of note on the domestic docket today direction will stem from broader directional flows ahead of next weeks GDP print.