Aussie drops on increased expectations of Fed rate hikes

Australian Dollar:

The Aussie dollar fell sharply overnight moving back below 0.93 and opens this morning almost a full cent lower swapping hands at 0.9277. The downward correction seems to be driven by the overall decline in Iron prices and expectations the US Fed reserve will look to adopt aggressive monetary policy rhetoric in the months ahead. The Aussie has proved amazingly resilient of late bolstered by carry trade plays as investors look to short Euro and Yen and take advantage of higher yielding assets. It is this support that we expect will help the AUD maintain ranges between 0.92 and 0.94 in the short term. Attention turns to NAB business confidence report today as the main ticket on an otherwise quiet economic calendar.

• We expect a range today between 0.9220 – 0.9350

New Zealand Dollar:

The New Zealand dollar dipped to six month lows as expectations the US Federal Reserve will look to hike rates throughout the 2nd or 3rd quarter of 2015 increased. Falling to 0.8258 in overnight trade the New Zealand recovered slightly and opens this morning buying 0.8278 US cents. The Kiwi still remains a popular carry trade option with support around 0.8250 building however as expectations RBNZ monetary policy strategy has shifted toward a neutral bias markets will be keenly focused on Thursday’s Central Bank meeting.

• We expect a range today of 0.8250 – 0.8350

Great British Pound:

Sterling’s fall from grace continued Monday as speculation the YES vote may actually prevail in the Scottish Referendum spooked financial markets. Having lost some two percent in the past month Scotland’s successful secession from the union will likely pose more questions than answers. A withdrawal will instil a greater sense of caution within the Bank of England, reducing expectations of a change in the current monetary policy strategy. Uncertainties surrounding the economic and political implications of a split have forced investors into a rapid retreat with the next level of support at 1.60 with moves toward 1.5850 a real possibility. Eyes now turn to Manufacturing production and the Bank of England’s Governor Mark Carney as he speaks in Liverpool this evening as the macro drivers of direction throughout Tuesday trading.

• We expect a range today between 1.7220 – 1.7480 

Majors:

Amid conjecture financial markets have underestimated the pace of Fed monetary policy reform the USD surged to 14 month highs throughout trading on Monday. In a research report produced by the San Francisco Federal Reserve it is suggested that low volatility across currency, equity and futures markets is a sign of misguided investor confidence in the accommodative pace of rate rises. The report sparked a USD rally as a more aggressive Fed stance is expected at next week’s monthly meeting. Punching higher the USD touched 1.2882 against the Euro, highs not seen since July 2013, as investors continue to seek excuses to sell the 18 nation bloc unit. The Yen depreciated as much as 1 percent as the USD breached 1.06 for the first time since October 2008 after the Japanese Cabinet Office reported a decline in annualised GDP and a narrowing current account surplus.  Yen weakness is expected to continue as increased quantitative easing and overall lacklustre economic performance hamper growth prospects in Japan.

Data releases

• AUD: NAB Business Confidence Report
• NZD: No Data
• JPY: Monetary Policy Meeting Minutes, Tertiary Industry Activity, 30 Year Bond Auction, Consumer Confidence and Prelim Machine Tool Orders.  
• GBP: Manufacturing Production, Trade Balance, Industrial Production, NIESR GDP Estimates and BoE Governor Carney Speaks.
• EUR: French Government Budget Balance and French Trade Balance
• USD: JOLTS Job Openings and FOMC Member Tarullo Speaks