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Aussie Dollar steady ahead of key U.S. CPI print

Daily Currency Update

Thursdays session saw the Australian Dollar maintain its current trend, moving 0.2% higher in its march towards 0.72, a level not seen since December 19th. The Aussie was initially sold off during domestic play as a weaker than expected Chinese CPI print of 1.9% on an annualised basis saw an intraday low of 0.7145.

Federal Reserve Chairman Jerome Powell maintained his flexible rate outlook overnight at a speech in Washington citing a concern in the Chinese economy along with muted inflation. With Powell’s cautious outlook to start 2019, commodity linked currencies continue to receive a boost as investors unwind their greenback positions.

With no Macroeconomic data due for release today from the domestic economy, the Australian dollar will be driven by the latest release of Inflation figures due out this evening from the United States. The AUD/USD looks to continue its recovery and test 0.7200 over the coming days with current support levels at 0.7155.

The Australian Dollar Opens this morning at 0.7185.

Key Movers

The New Zealand Dollar remains relatively unchanged from yesterdays reading, opening at 0.6780 despite an attempted rebound from the Greenback.

The big news overnight was the Federal Reserves’ Chairman Powell speech at the Economic Club of Washington DC which received a mixed response. The news was decidedly more hawkish than the meetings minutes on Wednesday with Powell reiterating the Fed’s data driven stance and confidence in the economy. The positive read did lead to a resurgence in the USD in some geographies but mostly failed to sway markets overall. Within this context, the NZD initially fell to a low of 0.6771 before regaining the momentum and touching 0.68. The Kiwi however, failed to move beyond the mark again.

Moving into Friday, the Kiwi again enjoys a relatively uneventful day on the economic calendar. Direction will again be determined from the US with their inflation report due for release on Saturday.

The pound fell towards the back end of the north American session as the cable lacked domestic drivers with the focus for the pair still firmly rooted in the US federal reserve, USD weakness and political risks stemming from the impending Brexit vote. GBP/USD traded within a range of 1.2726 and 1.2801 before falling from 1.2780 to levels nearer to 1.2750. EUR/GBP fell on the day as an air of caution enveloped the European market after both Germany and France have displayed weaker than expected Q4 growth and PMI numbers. The ominous signs for 2019 growth in the eurozone have pushed the EUR lower, with EUR/GBP falling from 0.9060 to 0.9011.

On the Brexit front, Prime Minister Theresa May has been speaking to union leaders and Labour MP’s in a desperate attempt to get her Brexit deal through the UK parliament, even though a large portion of her own ministers oppose it.

We still see initial intraday support for GBP/USD around the 1.2720 handle, with any topside moves expect to face selling pressure approaching the key psychological 1.2800 level.

The US dollar rebounded through trade on Thursday bouncing off three-month lows following commentary from Fed Chair Jerome Powell. The US Central Bank head confirmed policy makers intended to shrink the banks balance sheet throughout 2019, indicating the FOMC is not done tightening monetary policy. Powell’s upbeat assessment of near term economic performance and his commitment to flexible and adaptive monetary policy helped the USD advance against most major currency counterparts allowing the dollar index to push back through 95.5.

Despite the hawkish undertone investors remain bearish when assessing likely Fed rate hikes with much of the market pricing out a 2019 rate amendment, frontrunning signs the US economy is turning and may be ahead for recession should global growth constraints and ongoing trade hostilities continue.

Attentions today turn to US CPI data as the headline item on the day macroeconomic ticket. A soft helps fuel market expectations the Fed will delay rate hikes and could compound the recent dollar weakness.

The EUR tumbled against the USD amidst news of a much weaker than expected figure in French industrial production. This was the weakest figure in 4 years and comes off the back of poor German industrial production figures released earlier this week.

The release of the ECB minutes yesterday revealed that the European officials are much more concerned with the deteriorating situation in the Eurozone than they let on. Another important takeaway is the confirmation that a new Target Long Refinance Operation (TLTRO) is under consideration, and that they suggested to revisit the contribution of it to monetary policy going ahead. The TLTRO is a refinancing operation where the ECB can lend long-term loans to banks, and offer them an incentive to increase their lending to businesses and consumers in the Euro area. This will help return inflation rates to level below, but close to 2% over the medium term.

The EUR opened at 1.1498 against the USD this morning.

Canada enjoyed a quiet day on the economic calendar with movements driven by releases south of the border. The United States had further speeches from the Federal Reserve to digest which ultimately did very little, despite some fluctuations throughout the session. The 6-day appreciation of the CAD against the USD finally came to an end with the Greenback appreciating a paltry 0.1% against its northern neighbour. Initially, things looked rosier for the US Dollar as it rose as high as 1.3250 but it was slowly whittled down to open this morning at 1.3235.

The big news overnight was the speech from FOMC Chairman Jerome Powell who reiterated the data driven nature of rate hikes and his confidence in the economy. His attempt to calm markets after the FOMC minutes on Wednesday was mostly successful with the sell-off of the USD reversing direction in some geographies. The Canadian Dollar however, mostly held its ground.

Moving into the end of the week, the Canadian Dollar looks again to the US for direction in lieu of any data from Canada.

Expected Ranges

  • AUD/NZD: 1.0550 - 1.0720 ▲
  • GBP/AUD: 1.7620 - 1.7990 ▼
  • AUD/USD: 0.7080 - 0.7220 ▲
  • AUD/EUR: 0.6180 - 0.6320 ▲
  • AUD/CAD: 0.9380 - 0.9580 ▲