Broad based US strength sees AUD driven lower

Australian Dollar:

The Australian dollar correction continued Tuesday as emerging market and commodity based currencies suffered at the hands of continuing Greenback strength. Confidence in the US economic recovery continues to grow as investors and analysts adjust their expectations of the timing of a Federal Reserve rate hike. Bolstered by increased treasury yields US Dollar strength forced the Aussie lower breaking 0.92 to hit session and overnight lows at 0.9188 before finding support. Opening this morning just above 0.92 there are some signs that the worlds base currency may be slightly overbought in the short term but expectations of long term USD strength should support a sustained Greenback rally in the months to come. Focus no turns to Thursday’s employment data as a critical marker for direction into the weekly close.  

• We expect a range today between 0.9150 – 0.9300

New Zealand Dollar:

The New Zealand dollar continued its weekly reversal touching overnight lows at 0.8224 before closing the session just below 0.8250. A victim of overall US Dollar strength the Kiwi has suffered a broad based sell off as markets re-adjust their expectations of when the Federal Reserve will look to adjust interest rates and reverse its accommodative stance. Focus this week remains on the RBNZ and its rate announcement and accompanying rate statement Thursday for directional indicators.

• We expect a range today of 0.8215 – 0.8350

Great British Pound:

Sterling enjoyed a modest recovery throughout Tuesday trading bouncing off 11 month lows at 1.6063. The panic that prompted investors to dump Sterling and Sterling assets Monday subsided as markets took stock ahead of a possible Scottish secession. Stable manufacturing production and comments from Bank of England Governor Mark Carney prompted an upward rally back toward 1.61. Carney suggested that the BoE will look to “raise rates in the spring” the clearest indication of monetary policy direction since May/June. Focus will remain with the Scottish referendum as a marker for direction leading into the Inflation report hearing this evening.  

• We expect a range today between 1.7350 – 1.7550

Majors:

The U.S Dollar rally lingered Tuesday as markets and investors continued to bet on the timing of Fed rate hikes. Treasury yields climbed while the bond market surged increasing demand for the USD and US denominated assets. Consistently improving economic data has boosted expectations the Fed may be closer to raising the bench mark cash rate and an uptick in retails sales yesterday added further support to such claims. While it seems there is still some slack to be picked up in the labour market, highlighted by Friday’s soft NFP numbers, the market believes the Federal Reserve is moving closer to its overall economic objectives. The Euro remains under pressure but seemed to find support on approaches toward 1.2815 and moved back above 1.29 throughout trading on Tuesday, while the Yen continued its downward spiral. The Yen seems placed for a dramatic retracement as central bank policies and economic outlooks diverge with a broader range between 110 and 120 expected moving into the New Year.

Data releases

• AUD: Westpac Consumer Sentiment.
• NZD: No Data
• JPY: Core Machinery Order m/m and PPI y/y.
• GBP: Inflation Report Hearings.
• EUR: French Final Non-Farm Payrolls q/q, French Industrial Production and German 10 Year Bond Auction.
• USD: 10 Year Bond Auction, Crude Oil Inventories and Wholesale Inventories