RBA on hold as all Eyes on US midterms
Wednesday 7 November, 2018
Daily Currency UpdateThe Australian dollar edged marginally higher throughout trade on Tuesday making fresh intraday highs at 0.7231. While the RBA kept rates on hold for a 25th consecutive meeting changes in forecasts suggest a more positive outlook and have helped foster an upbeat tone ahead of Friday’s Quarterly Monetary Policy Statement.
The AUD was largely range bound through much of Tuesday holding onto gains enjoyed into last weeks close but struggling to make a meaningful break beyond 0.72 US cents. Markets largely anticipated RBA inactivity and instead directed attentions toward the US Congressional midterms. Investors remain wary of extending USD upside ahead of the election outcome conscious that a break in republican control of the house and/or senate could drastically change the shape of US domestic and foreign policy.
Attentions today remain keenly affixed to the US congressional election results. If the Democrats can rest control of the House and the republicans retain a senate majority, we expect short term dollar softness with a return to upside as the focus shift back to tightening Fed policy. While a should either side win both houses volatility will likely generate a broader market reaction and could propel the AUD back toward 0.73 or foster a break back below 0.71.
Key MoversThe domestic docket offered little to excite investors throughout trade on Tuesday so the New Zealand Dollar moved within a tight range of 0.6645 and a high of 0.6683. Markets are eagerly awaiting the results of last night US Mid-Term elections which should start to feed though later today.
With both the House and the Senate being currently controlled by the Republican Party (giving full control to Trump at the moment). The probabilities of the Democrats taking the Senate are slim but the market is pricing a high chance of Democrats taking the House of Representatives which reduce chances of fresh stimulus, raise chances of debt ceiling grid-lock and probably be slightly dollar negative.
On the calendar front, the Statistics New Zealand will publish the third quarter unemployment rate, which is expected to stay unchanged at 4.5%.
We see initial support sitting at 0.6635 followed by 0.6600, on the upside, resistance sits at 0.6688 and 0.67722.
Global currency markets treaded water for the much of the day ahead of the all-important US mid-term elections. Despite the lower volumes across the market, the Great British Pound was the best performing currency, again gaining slightly against its US counterpart to open this morning at 1.3095.
The Sterling gained approximately 0.4% on yesterdays open as again Brexit headlines buoyed the Pound. The UK Cabinet met to discuss Brexit but so far, nothing yet has been agreed. A spokesman for the Prime Minister did say that there was still significant work to do to resolve outstanding issues. Nevertheless, the market is taking an optimistic view on the likely outcome as both the UK and EU seem eager to wrap up the divorce deal.
Moving into Wednesday, the market will keep a very close eye on the US mid-term elections as the results are released throughout the day. Closer to home, investors will, as always, keep a close eye on the Brexit headlines.
The Greenback was mostly unchanged on Tuesday as Americans headed to the polls. With the US midterm elections underway all major currencies, with the execption of the Pound Sterling remain within familiar levels, with a moderate pressure on the greenback. Polling stations will begin to close from 10am AEDT, and we may have an idea of whether the Democrats have a chance of flipping the House by sometime 3pm AEDT. The Democratic Party is expected to win control of the U.S. House of Representatives, with Republicans likely to retain their majority in the Senate.
On the local data front yesterday the US released some minor figures, which showed that the number of job openings decreased to 7.0 million in September, decreasing from a 7.29M revised figure in August. Wednesday will be all about the US mid-term elections' outcome.
From a technical perspective, the US. dollar is currently weaker against the Aussie dollar trading at 0.7236 (down 0.4%) and New Zealand dollar trading at 0.6735 (down 1.09%).
The Euro crept higher through trade on Tuesday pushing back above 1.14 as investor remain conscious of a surprise result in the US midterms. Strong gains across Europe’s service sectors and an uptick in German factory orders helped underpin Euro upside yet had little broader impact as attentions remain squarely fixed on the weeks premier risk event, the Congressional Elections.
Much of the Euro’s recent softness has been down to a divergence in US and European growth prospect and monetary policy platforms. The USD has outperformed the Euro since April and investors are keenly attuned to this congressional race as a critical juncture that may disrupt recent US dollar upside.
Having touched intraday highs at 1.1420 the Euro open this morning at 1.1413. In the absence of headline domestic data attentions remain with the outcome in the US midterm elections with a surprise result possibly prompting a test of 12 month lows at 1.1300 or a bounce beyond recent resistance handles at 1.1585.
The US Mid-Term elections are dominating market sentiment ahead of the release of results later during the day. Volumes remain low as global currency markets tread water ahead of the referendum on President Trump. Within this context, the Canadian Dollar has done very little and opens this morning at 1.3129.
The Loonie did lose some marginal ground against its US counterpart as the commodity sensitive currency struggled to find demand amid the ongoing crude oil sell-off. Other than that small movement lower, the Canadian Dollar has treaded water ahead of the US Mid-Term elections, as have most currency pairs. There was some marginal positive news released however with building permits higher at 0.4% against the forecasted 0.3%.
Moving into Wednesday, the Canadian Dollar continues to keep a close eye on the US elections. Closer to home, the Canadian Dollar will also look to the Ivey PMI figures for direction.
- AUD/NZD: 1.0730 - 1.0980 ▲
- GBP/AUD: 1.7850 - 1.8280 ▲
- AUD/USD: 0.7080 - 0.7280 ▲
- AUD/EUR: 0.6210 - 0.6380 ▲
- AUD/CAD: 0.9300 - 0.9530 ▲