Aussie sitting tight ahead of key RBA statement.
Tuesday 7 August, 2018
Daily Currency UpdateThe Australian Dollar remained relatively rangebound in overnight trading, oscillating between 0.7375 and 0.7404. Opening this morning at 0.7385, the Aussie looks to sit tight ahead of the Reserve Bank of Australia’s Rate Statement later today.
Monday was a mostly benign day with little market action to drive momentum for the Aussie with pundits mainly taking a ‘wait and see’ approach. The tight trading range reflected this as Traders looked forward to Tuesday’s rate statement from the RBA as a catalyst. While the RBA is widely expected not to hike cash rates until the later quarters of 2019, Investors look to today’s rate statement for clues on the Banks thinking and bias. This statement is particularly interesting with an interest rate cut not necessarily off the table after last months statement.
Otherwise, it remains a rather lifeless economic calendar for Australian traders with few risk events on the horizon. The Market will continue to monitor the headlines for on-going geo-political trade tensions and the RBA statement for direction.
Key MoversThe New Zealand dollar stuck to a very tight trading range Monday ahead of key central bank meetings both in New Zealand (Thursday) and in Australia (Today). The Reserve Bank of Australia is expected to leave rates unchanged at 1.50%. The Kiwi is weaker this morning against the Aussie currently trading at 0.9111 (1.0975).
Data wise yesterday the ANZ Commodity Price Index slid a further 3.2% in July following a 0.9% dip in June, but is still 3.1% above late-2017 levels and broadly flat on a year ago. Of the 17 commodities in the index, 12 fell, three were unchanged and two lifted. There is nothing to report locally today in New Zealand. All attentions turn to the Reserve Bank of Australia’s interest rate announcement.
From a technical perspective, the NZD/USD pair is currently trading at 0.6728. We continue to expect support to hold on moves approaching 0.6713 while now any upward push will likely meet resistance around 0.6746.
Monday saw the pound plunge to 11 week lows against the greenback as growing concerns surrounding Britain’s planned exit to leave the Euro Zone continue to build. The Sterling weakness was further exacerbated as the USD was boosted by US-China trade war rhetoric as China proposed retaliatory tariffs on US goods to the tune of $60 billion.
Cementing its status as the worst performing currency over the last month when valued against the greenback, falling 2.5% against the dollar and 1% against the Euro respectively. Yesterday’s fall can be attributed to comments made by UK trade Secretary Liam fox which served as a warning that there was a “60-40 chance” the UK would exit the European Union in March with no agreement.
The GBP/USD pair rebounded off lows of 1.2917 to reach levels of 1.2940 representing a 0.5% intraday depreciation. With nothing of note in terms of data releases early this week, traders will be looking towards Fridays Q2 GDP release which will serve as an important marker for the state of the domestic economy with a strong read likely to be interpreted as supportive of BoE’s decision to raise interest rates last week.
With political factors expected to continue to drive direction of the GBP, downside supports can be seen around the 1.2920-1.2900 levels with any upside moves expected to catch resistance at levels approaching 1.3000.
The Greenback has appreciated modestly overnight to its highest level since July 19, the index (DXY) rose from 95.23 up to 95.52 on the back of on-going tensions between the United States and China. China has lashed out and said it would impose duties of 25%, 20%, 10% and 5% on U.S products worth more than $60bn that is if Trump was to follow through with further threats on Chinese imported goods.
We saw the largest move on the pound, GBP/USD moved off its 1.30 perch down to 1.2925 as comments by U.K officials 60 per cent chance of a no-deal Brexit. EUR/USD currently hovering around 1.1555, down a shade after the release of German Factory Orders, latest figures showed a contraction of 4% on a monthly basis in June following May's 2.6% expansion and fell short of analysts' estimate of -0.4%. USD/JPY rose slightly to 111.40 as risk sentiment improved.
In other news, oil was up a little overnight and gold was a touch lower.
Looking ahead, the economic calendar is light apart from the RBA in Australia interest rate decision, no change in the cash rate is what the markets are pricing in.
The Euro edged marginally lower through trade on Monday slipping through 1.1550 to touch intraday lows at 1.1530. In the absence of headline macroeconomic data politics dominated direction as rumours suggest the likelihood of a no deal Brexit looms larger, while US - China Trade tensions continue to simmer and bolster the worlds base currency.
Suggestions the UK maybe forced to leave the European Union without a firm trading agreement forced the Euro to a 5 week low and opens the door for a possible test of supports at 1.15. That said the 19 nation combined unit is reasonable well bid on moves toward 1.15 and we suspect a new catalyst or spark will be required to force a break below this handle. We remain of the view that while short term pressures have created an immediate bearish downtrend the medium and longer term forecast remains bullish, however caveat this with the possibility of softness should the ECB push back its monetary policy tightening timeline.
With just middle level data on hand today attentions remain squarely directed to ongoing Brexit developments as the primary source of broader direction.
The Canadian Dollar moved to the lower end of recent ranges but failed to excite with any broad-based shifts through trade on Monday. In the absence of headline data sets the Loonie edged downward touching intraday lows at 0.7669 as US-China Trade tensions continue to simmer adding support to traditional haven plays and bolstering the Greenback.
China’s proposition of retaliatory tariffs on $60bn of US exports helped fuel demand for the world base currency as, much to the ire of President Trump, many analysts see tariffs as dollar positive. The ongoing threat to trade continues to weigh on the Canadian dollar as amended NAFTA agreements remain unsigned. While reasonably well supported on moves approaching 0.76 US cents the Canadian dollar remains open to a significant downward correction should NAFTA breakdown. While the likelihood of this seems remote at this point it is acting to cap upside moves beyond 0.78-0.79 US cents and remains the primary driver of medium and long term direction.
Attentions today remain with Trade and politics as markers for wider risk sentiment and direction.
- AUD/NZD: 1.0920 - 1.1000 ▲
- GBP/AUD: 1.7400 - 1.7680 ▼
- AUD/USD: 0.7340 - 0.7410 ▼
- AUD/EUR: 0.6350 - 0.6410 ▼
- AUD/CAD: 0.9560 - 0.9630 ▼