Home Daily Commentaries Australian Dollar continues to trade in bearish channel

Australian Dollar continues to trade in bearish channel

Daily Currency Update

The Australian Dollar position moved initially higher to start of the week and saw intraday highs of 0.7107. Unable though to push through key resistance levels with profit takers hit the market, the Australian dollar traded lower into the sideways channel the AUD/USD has sat within since the start of October.

The Housing Industry Association New Home Sales showed an increase of 1.1% for the month of September, a positive number after seeing a decline in the past two months.

The Aussie settled in familiar territory lower as it once again looks to test support levels at 0.7050 after upbeat United States consumer spending rose for the seventh straight month pushed the greenback higher. This morning sees the release of Building Approvals along with a speech by RBA Assistant Governor (Financial System) Michele Bullock at the CBA Markets conference in Sydney.

The Australian Dollar opening this morning at 0.7053.

Key Movers

The New Zealand Dollar is slightly stronger this morning when valued against the U.S. Dollar on the back of ongoing China-US economic spat continuing to fester. The NZD/USD reached an overnight high of 0.6554.

On the data front this week in New Zealand it is very quiet with Building Consents on Wednesday followed by business and consumer confidence stats on Wednesday and Thursday. There are no scheduled releases in New Zealand today.

From a technical perspective, the NZD/USD pair is currently trading at 0.6521. We continue to expect support to hold on moves approaching 0.6501 while now any upward push will likely meet resistance around 0.6582.

The pound is slightly lower this morning when valued against the greenback. It traded in a relatively tight range, oscillation between 1.2826 and 1.2791 before consolidating around key support at 1.2800 heading into the Sydney session. Much of the overnight focus was on Angela Merkel’s declaration, overshadowing the UK government’s budget announcement which saw UK chancellor Phillip Hammond outline the UK’s plan to end austerity.

The announcement was a non-event for currency markets as developments were largely in line with leaked information over the past few weeks. The budget took advantage of upward revisions in growth forecasts, proposing these be spent rather than saved, including additional funding boosts for welfare initiatives and housing and infrastructure investment. It must be noted that these plans are largely conditional on an orderly Brexit, with the bulk of the decisions regarding how these moves will be funded left until after the Brexit decision, effectively adopting a ‘wait and see’ mentality.

With the budget announcement now behind us, traders will be looking towards Thursday’s Bank of England monetary policy decision, however given the ongoing Brexit uncertainty we do not anticipate there will be much change in the central bank’s policy outlook. Particular emphasis will be placed on any revisions to growth projections which could engender some price action.

Recent moves mean any sterling weakness could see the cable test 2-month lows of 1.2777 which were released last week. In terms of key technical levels to consider, we see the GBP/USD as being relatively well supported around the 1.2774 handle, whilst we expect any upside moves to meet technical resistance at levels nearer to 1.2830.

The USD edged upward through trade on Monday as robust consumer spending and Euro nervousness helped bolster demand for the world’s base currency. The dollar index edge up a quarter percent pausing marginally below 10 week highs. Consumer spending rose in September, marking the seventh consecutive month of increased shopping frivolity. Further support came on the back of news German Chancellor Angela Merkel would not seek re-election as party chairwoman. Considered the Iron Lady of Europe her departure from European politics only heightens broader political instability. The Euro slipped some 0.14% against the dollar, falling back through 1.14 to touch intraday lows at 1.1364.

Despite a softening in recent upside moves we expect continuing macroeconomic strength and haven support will underpin the dollar. However, increasing capital market volatility, wavering corporate earnings and questions surrounding the policy impact of the upcoming November midterms continue to weigh on broader dollar value adding to recent range bound trading as investors appear reluctant to extend bullish or bearish moves.

Attentions today turn to consumer sentiment data and ongoing US-China trade war developments for direction through trade on Tuesday.

The Euro fell against most major counterparts on Monday following reports German Chancellor Angela Merkel would not stand for party re-election at the end of her current tenure. In what was perhaps a knee jerk reaction, markets pushed the 19 nation combined unit below 1.14 to touch intraday lows at 1.1364. Merkel, considered the leader of Europe has been a stalwart in driving European unity through the last 13 years and her departure only adds to the narrative of instability that is European politics.

While the immediate impact will perhaps be short lived, recent swings in key German regional elections coupled with Merkel’s departure raise questions over the future of German politics. Should a social and political swing within Germany raise questions over the resolve of Europe’s largest economy to support periphery states we could witness a sustained period of ongoing Euro weakness.

Attentions today turn to further political developments as Italy continues it tete-a-tete with Brussels, while Prelim GDP data drive macroeconomic direction.

The Canadian dollar pulled off from Fridays stronger close as greenback strength and a decline in oil prices was the main catalyst for the damage. The USD/CAD position rallied from 1.3080 on open to key resistance lines around 1.3150.

Oil futures were down nearly one percent and trading just a tick over $67 a barrel as Russia suggested supply will remain high as U.S. sanctions on Iran exports look to put pressure on supply in a weeks’ time.

Next moves for the Loonie will be underpinned by Bank of Canadas Governor speech at the House of Comms Standing Committee on Finance this evening. Market participants will be eager to see if there will be any change to rhetoric around potential further interest rate rises after raising rates last week to 1.75%

From a technical perspective, the USD/CAD pair is currently trading at 1.3130.

Expected Ranges

  • AUD/NZD: 1.0730 - 1.0980 ▼
  • GBP/AUD: 1.7975 - 1.8440 ▲
  • AUD/USD: 0.7030 - 0.7150 ▼
  • AUD/EUR: 0.6130 - 0.6280 ▼
  • AUD/CAD: 0.9180 - 0.9320 ▼