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Greenback Regaining Support After Hawkish Fed Comments

By OFX

The US dollar rallied through trade on Wednesday and the overnight following commentary from Fed Chair Jerome Powell. Powell suggested the U.S economy was continuing to grow at a rapid pace and signs were “remarkably positive,” intimating the Fed will continue to raise interest rates as planned. A series of hawkish Fed commentary has helped fuel support in the week since the Fed opted to increase interest rates for the 3rd time this calendar year, driving the Greenback to fresh six-week highs.

The US dollar continues to outperform its counterparts as domestic economic strength offers a stark contrast to the broader global economy. The Eurozone, UK, Japan, and other larger economies both developed and emerging continue to show signs of a material slowdown while the US continues to perform at or above market expectation, evidenced by a 21 year high in Services sector activity through September.

Attentions now turn to Friday’s Non-farm payroll figures with emphasis directed to average hourly earnings and any significant labor market strength which directly impacts wage growth. Trade Balance numbers are also out tomorrow at 8:30 am. US equity futures are pointing to a soft open for US markets.

The Canadian Dollar retreated in overnight trading to start Thursday at 0.7770(1.2870). In the absence of any domestic data this morning, until 10 am when we have Ivy PMI Data, the loonie looks to its counterpart south of the border for direction. The Greenback is set for a strong showing today on the back of yesterday's hawkish comments from Fed Members that have bolstered the worlds reserve currency.

WTI Crude trades at 75.88 dollars a barrel currently about a dollar off of yesterday's high. The gold spot price has been climbing this week as markets continue to price in rate hikes from the Federal Reserve spot is at 1203.

The most significant event risk for the loonie will be tomorrow's employment number, unemployment rate, and trade balance figures. Support for the USDCAD is seen at 1.2861 and 1.2820 while first resistance is at 1.2903 with second viewed at 1.2945.

The Euro broke key technical supports through trade on Wednesday falling below 1.15 to touch intraday lows at 1.1471. Renewed US dollar support on the back of sustained FOMC and Federal Reserve hawkish commentary coupled with escalating concerns surrounding Italy’s debt, fiscal future and ongoing relationship with the Eurozone have forced a persistent downward correction and heightened market nervousness.

Having broken 1.15 markets will be keenly attuned to any consolidation in the downward correction. A sustained move below 1.15 could signal a deeper depreciation is evident and see the combined unit move nearer 2018 lows of 1.1301.

Attention remains squarely fixed on ongoing Italian economic and political developments for immediate short-term direction with broader guidance stemming from the burgeoning gap between US and Eurozone growth

GBP/USD fell on Thursday as the greenback strengthened against a range of currencies. The pair slipped below 1.30 in the early afternoon in London and settled as Theresa May delivered her closing speech at the Tory conference. She said that Britain was not afraid to leave the EU without a deal but that a no deal would be a bad outcome for both the UK and EU. She went on to say that her proposal was for a free trade deal, providing for frictionless trade. It was all relatively positive news for the pound and GBP/USD pushed back above 1.30. The recovery in GBP/USD came despite the release of some stronger than expected US data by way of ISM Non-Manufacturing PMI and ADP Non-Farm Employment and some reasonably hawkish comments from the Fed’s Powell, albeit Powell’s remarks came much later in the day.

The combination of strong US data and hawkish Fed comments took a toll on the GBP/USD which fell back below 1.30, but it has so far found good support at 1.2950 and resistance is now the 1.3029. Although it’s a quiet day today concerning data, investors will have half an eye on tomorrow’s US Non-Farm Payrolls and average earnings data, both important sets of data.

A tough session for the Aussie dollar on Wednesday, threatening to record new multi-year lows against the greenback and falling against most of the major crosses. The catalyst for the price action was the release of strong US macroeconomic data which caused a spike in US treasury yields and propelled the greenback higher. The AUD and NZD were rendered the worst performers amongst their G10 peers in the day, both falling 1.2%.

The AUD/USD is currently changing hands at 0.77085 heading into Thursday’s North American session. August Trade Balance figures showed more of a surplus than consensus posting a 1,604M. Later tonight we have the MoM August Retail Sales and New Home Sale figures for Australia.

From a technical perspective, AUD/USD sees support at 0.7067 with any topside moves likely to meet resistance at 0.7104.

NZD/USD has gone the same way as most other currencies - and commodity currencies – vs. the USD, and for the same reasons. Markets ignored local data - ANZ Commodity Price index, which dropped for the fourth consecutive month down 1.8% in September, pushing annual growth further into negative territory, at -3.0% year-on-year.

The New Zealand Dollar opens at 0.6492 in North America one cent lower from yesterday's open against the worlds reserve currency. Support for the kiwi is seen at 0.6482 while resistance is the overnight high of 0.6504.