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Aussie tumbles on RBA rate cut

MATT RICHARDSON

The Australian Dollar surged higher through trade on Tuesday breaking through the psychological 0.75 handle touching intraday highs at 0.7564 as comments from President Elect Donald Trump and a surge in commodities forced the USD lower. In an interview with the Wall Street Journal Trump suggested the U.S Dollar was overvalued, lashing out at China and its currency management strategies. The comments fuelled fears of a heavy handed protectionist approach and a rift between Beijing and Washington forcing investors to continue the downward USD correction. The AUD found further support in surging commodity prices. Bloomberg’s commodity Index touched 7 month highs as Iron Ore and Copper largely held on to recent gains. Having broken the back of resistance at 0.75 the AUD is now poised for an extended push with stops at 0.7630 and 0.77. Attentions now turn to Fridays Presidential Inauguration for wider direction with investors positioning themselves through trade on Wednesday and Thursday. Should Trump fail again to proffer a clear policy platform then the USD remains vulnerable to deeper downside moves.   

The New Zealand Dollar rallied one cent higher yesterday against the US Dollar from levels of 0.7100 to 0.7200. The main catalyst for the move were comments from President-elect Trump released by the Wall Street Journal saying the USD was too strong and that US companies can’t compete with China because of it. The US Dollar Index fell 0.8% to its lowest level in one month. As noted recently, any comments by Trump can easily trigger a market reaction and with the market being long USD traders are quick to sell and square up. 

The much anticipated Brexit speech from UK Prime Minster Theresa May caused markets to rally pushing GBP/USD 3% higher to close around 1.2400. The PM confirmed that the UK will leave the EU single market when it leaves the EU but parliament would be given a vote on the final terms which eased markets. May said Britain would aim to establish its own free trade agreements with countries and impose limits on immigration which many Brits support and agree that greater control over immigration is more important than access to the single market. In other news, UK inflation hit a two-year high coming in at 1.6% vs an expected reading of 1.4% thanks mainly to a weaker pound since the Brexit vote continues to push up cost in the UK. 

The U.S Dollar continued lower through trade on Tuesday touching 4 week lows following comments from President Elect Donald Trump. Sterling lead the charge against the embattled Greenback marking its largest single day rally since 1998 while the Yen extended gains through a 7th consecutive session and the Euro moved through 1.07. On returning from a long weekend North American investors scrambled to manage positions following comments from Donald Trump in the Wall Street Journal. The incoming President suggested the USD was overvalued, again lashing out a China and policy maker’s currency management. The comments heightened concerns surrounding protectionist rhetoric and the optimism surrounding the new President’s ability to deliver on Growth promises continues to wane; there is an overwhelming sense within the market that Trump may be spreading himself thinly across a wide range of action areas rather than focusing and seeing through specific policy platforms. As politics continues to dominate direction attentions turn to Friday’s inauguration for wider medium term direction.