Aussie steady in face of broader risk of mood
Thursday 1 January, 1970
Daily Currency UpdateThe Australian’s dollars upward push stalled through trade on Wednesday as investors appeared reluctant to extend upside moves beyond 0.7120/30. Despite a broader backdrop of falling equities and a general risk off mood the AUD traded largely sideways, maintaining a tight 50 point handle between 0.7070 and 0.7130.
With little macroeconomic data on hand to drive direction, impetus for investor moves has derived from broader risk appetite and volatility, hampering any short term upside correction and ensuring the Aussie Dollar remains under a wider bearish cloud.
With little of note on today’s domestic docket attentions shift to key US inflation data. Fears the US economy may see a faster pace of price increases have weighted on investors, heightening fears the Fed will be forced to accelerate the pace of interest rate hikes, dampening demand for equities and pushing treasuries toward recent highs. We continue to watch supports at 0.7040 and 0.70 with short term resistance on moves approaching 0.7130.
Key MoversThe Kiwi traded sideways overnight as US and European equity markets suffered significant falls. There was no obvious catalyst for the depreciations in equity markets as currency markets remained well contained amid an absence of any news. NZD/USD opens this morning at 0.6470 and as we stated yesterday, looks to have consolidated around this level following its recent underperformance. The Kiwi fell 0.5% against the GBP, 0.4% against the EURO and rose 0.4% against the CAD as oil prices retreated
Wrapping up yesterday’s risk events, electronic card transactions rose by a lot more than expected in September – although its not a release that moves markets, it is further evidence of the domestic economy ticking along just fine. We also saw US PPI and UK GDP numbers released overnight which were in large part in line with expectations.
Looking ahead to today’s sessions we have second tier domestic data due in the form of NZ REINZ house sales and NZ food prices before this week’s key offshore release of US CPI due tonight. On the technical front, NZD/USD remains well supported at the 0.6350 level with any topside moves expected to meet resistance on moves approaching 0.6500.
The Great British Pound continued its positive run upwards overnight, forcing its way above 1.32 for the first time since September 26th. Opening this morning slightly lower at 1.3190, the Sterling was again well supported by Brexit optimism despite some results on the economic calendar.
Starting in the UK, month-on-month GDP figures released overnight remained flat and slightly below expectations. Despite the poor result, the UK economy looks to still be on track for a decent quarter with Industrial and Manufacturing Production both up 1.3% on the year. The Sterling traded briefly on the data but ultimately it had little impact when compared to Brexit headlines.
Brexit again remained the key focus for Traders with a significant appreciation after comments from the EU’s Chief Negotiator Barnier. Barnier indicated that a withdrawal deal was 80-85% done although they still need to agree on the Irish border issue. PM May’s chequers plan was also noted with the EU suggesting they found many points of convergence which could see the UK remain temporarily in the EU’s customs regime. The Sterling outperformed most of the major currencies on the back of Brexit optimism, rising 0.5% for the day.
Moving into the back-end of the week, The Pound has a few speeches from the Bank of England’s Carney to digest as well as keeping an eye on the Brexit front.
The US Dollar Index was lower on Wednesday as risk aversion reared its head overnight and a sharp fall in equity markets was witnessed. The Index fell from 95.76 down to a low of 95.38, it’s lowest levels in seven-weeks.
US stocks also dropped suffering their worst falls in more than eight years, the tech-heavy Nasdaq slumped 4 percent, while the S&P 500 fell 3.3 percent. Gold prices edged higher to US$1194.12 as investors sought out safe-haven assets amid the shares sell off. Oil slipped after the IMF cut its global economic growth forecasts for 2018 and 2019 on Tuesday, raising concerns that demand for oil may also slump.
On the data front, the US Producer Price Index climber in September which reinforced expectations that the Fed would hike interest rates at a faster pace.
Looking ahead, tonight sees US CPI and unemployment claims.
The Euro bounced off support levels of 1.15 overnight and advanced to its highest levels this week as it looks to gather upside momentum. Strong numbers for both Italian and French Industrial Production supported the moves higher during the European session, moving to an overnight high of 1.1545.
Deputy Italian Prime Minister Matteo Salvini assured his country would not back down from its budget plans despite yields reaching highs and reiterated that they country has no plans to leave the EU.
Broad greenback weakness following ongoing trade wars tensions between US and China supported the rally higher on EUR/USD despite profit taking and settling at 1.1520 on open this morning.
ECB Monetary Policy Meeting Accounts are due for release this evening along with the United States all important Consumer Price Index report for the month of September.
The Canadian dollar has edged higher in the Wednesday session on the back of U.S. equities taking a beating as concerns about global economic growth and ongoing trade tensions continued to hang over Wall Street. The Dow Jones industrial average dropped more than 800 points to 25,598.74, its steepest decline since March.
On the local data front yesterday, Canadian Building Permits gained 0.4%, shy of the estimate of 0.5%. Canadian municipalities issued $8.1 billion worth of building permits in August, up 0.4% from July. Strength in the non-residential sector drove the increase, while the residential sector declined for the third consecutive month.
From a technical perspective, the USD/CAD pair is currently trading at 1.3051. We continue to expect support to hold on moves approaching 1.2950 while now any upward push will likely meet resistance around 1.3108.
- AUD/NZD: 1.0890 - 1.1010 ▼
- GBP/AUD: 1.8430 - 1.8830 ▲
- AUD/USD: 0.7000 - 0.7130 ▼
- AUD/EUR: 0.6080 - 0.6230 ▼
- AUD/CAD: 0.9180 - 0.9250 ▲