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USD Firms into the End of the Week

By OFX

Trump has touched down in the UK yesterday for the first time as president. He’s already causing a stir by blasting PM May’s Brexit plans. Trump stated that if the UK does a soft Brexit, the US would rather deal with the EU instead and it would “kill” a UK-US trade deal. Fed Chairman Jerome Powell commented in an interview yesterday that the US economy is in a “good place” and that he is comfortable where the monetary policy currently sits, but the escalation of tariffs could pose a threat to future performance.

Import and Export Price in June, University of Michigan Sentiment in July and Monetary Policy Report Release to Congress are all due this afternoon.

Soft commodities and risk aversion is keeping the Loonie defensive. The only event risk due today is Existing Home Sales in June, which is expected to print at 1.5%. Oil prices has stayed relatively flat leading into the end of the week.

Traders are trying to get a firmer idea of when the ECB may raise rates from their negative level and the publication just re-iterated that they will remain on hold “through the summer of 2019.” It’s a quiet end to the week so Trump/trade will be the main driver of markets.

Donald Trump weighed in on the Brexit debate adding downward pressure to an already fragile Pound. In an interview with The Sun newspaper, Donald Trump undermined UK Prime Minister Theresa May's Brexit plan by saying “If they do a deal like that, we would be dealing with the European Union instead of dealing with the U.K., so it will probably kill the deal.” He also commented that ex-Foreign Secretary, Boris Johnson, who resigned over the proposed plan would make a “great prime minister.” The comments from the leader of a country many consider to be our closest ally will add to the argument of those who consider Theresa May a lame-duck PM with change at the top needed. Trumps comments have obviously rattled holder of the pound and it is lower across the board.

The Australian dollar is back above 0.74 cents this morning amid the improved risk-off sentiment. The Aussie reached an overnight high of 0.7437 after a bounce in US equities and base metals.

Yesterday on the local data front Australian Consumer Inflation Expectations decreased by 0.3 percentage points in July to 3.9 per cent (from 4.2 per cent in June). Looking ahead today and the macroeconomic calendar in Australia is empty with no scheduled releases. No doubt markets will again today be focusing on any further trade war developments between the US and China.

From a technical perspective, the AUD/USD pair is currently trading at 0.7403. We continue to expect to hold on moves approaching 0.7370 while now any upward push will likely meet resistance around 0.7450.

Overnight saw the Business NZ Manufacturing Index drop to 52.8 from 54.4 adding downward pressure to an already fragile Kiwi. There is no high level data next week at all from NZ so Trump/trade will dictate the local dollars direction.