AUD edges higher ahead of US Federal Reserve policy meeting

Australian Dollar:

The Australian Dollar has managed to parry Friday’s recent losses and opens slightly higher this morning against its US counterpart. Domestic markets remained subdued yesterday as most investors enjoyed a day in lieu following Sunday’s Australia Day celebrations leaving the AUD at the mercy of offshore stimuli for direction. Unexpectedly sales of new homes in the US declined 7% through December ending what has been the strongest performing year since the 2008 sub-prime mortgage crisis on a sour note. The Commerce Departments publication has sparked concerns the Fed may look to reconsider the pace of reductions in bond buying ahead of the Central Banks two day meeting which convenes today. The reading forced the Greenback lower and the AUD opens this morning at 0.8751 with eyes now turning to the NAB’s Business Confidence report for further bearing throughout domestic trade.

• We expect a range today of 0.8680 – 0.8800

New Zealand Dollar:

The New Zealand dollar edged upward yesterday following its Trans-Tasman counterpart higher. The Kiwi took advantage of a Greenback weakened by poor housing data and found support at 0.82 before trading to an intraday high of 0.8260. The NZD was however outperformed by AUD pulling back below the 0.94 handle ahead of an Australian Business Confidence report set to headline Tuesday’s local economic calendar. The New Zealand dollar has appreciated some 17% against its antipodean cousin over the past 12 months as strong domestic growth is juxtaposed by a slowdown in Australian economic performance. With the domestic docket clear of any meaningful data focus now turns to Prime Minister John Key’s policy statement and the US Federal Reserves 2 day policy meeting for further direction ahead of Thursday’s RBNZ cash rate announcement.      

• We expect a range today of 0.8200 – 0.8315

Great British Pound:

The Cable approaches two and a half year highs ahead of today’s preliminary GDP reading which is expected to mark a fourth consecutive quarter of expansion and the first full year of growth since 2007 and the financial crisis crippled the British economy. According to a Bloomberg news survey median economic forecasts predict a fourth quarter GDP increase of 0.7% and a continuation of above trend growth leading into 2014. With technical support levels now firmly in place at 1.64 Sterling is expected to continue to strengthen as we open the day just below 1.66 swapping hands at 1.6582 against the Greenback. The Pound’s strength spread across the board advancing against almost all major currency peers and opens higher against the NZD while relatively unchanged against the AUD this morning.

• We expect a range today of 1.8880 – 1.9015

Majors:

The US dollar has moved lower as New Home sales disappointed and concerns surrounding capital flight amongst emerging markets lead investors away from the USD and toward the JPY as a safe haven asset.  The annualised pace of expansion in new home sales was down some 7% for December while housing starts for the month showed a 9.8% decline and sparked concerns the Federal Reserve will reconsider the pace of bond buying reductions. A strengthening in the Japanese trade deficit surprised investors on Monday as exports jumped to 15.3% and imports to 24.7% with the overall trade balance shrinking to 1.15trillion Yen. The reading supported recent JPY strength as the Greenback looks to recover a 2% decline suffered against the Yen over the last week. The USD opens at 102.60 against JPY and relatively unchanged against Euro at 1.3672 as focus now shifts toward the US Central Banks two day policy meeting for further direction.

Data releases

• AUD: NAB Business Confidence
• NZD: No Data  
• JPY: No Data
• GBP: Prelim GDP         
• EUR: German Import Prices and ECOFIN Meetings
• USD: Core Durable Goods Orders, Durable Goods Orders, CB Consumer Confidence, Richmond Manufacturing Index and S&P Composite – 20 HPI Index