Aussie slumps on lower Iron Ore and U.S interest rate expectations

Australian Dollar:

The Australian Dollar opens markedly lower this morning having fallen over 1.2% through trade on Wednesday. Comments from Reserve Bank Governor Glenn Stevens suggesting “there is a pretty material risk that the currency will go lower than its current level” forced the Aussie into a downward trajectory. The move was further compounded as Iron Ore prices sunk to $70 a tonne while minutes from the Federal Reserve’s last FOMC meeting intimated the U.S is moving ever close to tighter monetary policy and higher interest rates. The AUD opens this morning clinging just above 0.86 cents as we look to a busy U.S economic docket for further direction through Thursday.

• We expect a range today between 0.8540 – 0.8780

New Zealand Dollar:

The New Zealand dollars six day rally stalled Wednesday as markets responded to a decline in the average price of whole milk powder. Investors had been expecting a levelling in global dairy costs and were surprised when mean prices fell from $2,522 a metric ton to $2,400. The continuing regression in dairy prices in combination with an increase in expectations the U.S Federal Reserve will look to higher interest rates sooner rather than later forced the Kiwi lower against 16 of its major trading peers and we open this morning buying 0.7856 U.S Cents. Focus now turns to PPI input and output as the primary domestic driver with a raft of Key U.S data sets steering off shore direction.

• We expect a range today of 0.7780 – 0.7920

Great British Pound:

The Pound rallied Wednesday reversing some of the losses suffered over the past six days as the BoE minutes failed to meet the markets dovish expectations. Sterling has been driven lower by a lengthening in timelines of expected interest rate hikes and fears inflationary pressures are stagnating. With markets adopting a bearish bias and shorting Sterling positions ahead of the BoE’s minutes investors were left scrambling as the Monetary Policy Committee adopted a slightly hawkish tone. Some policy makers suggested inflationary pressures were actually building and therefore reducing the need to keep borrowing costs down and cable moved back through 1.56. We open this morning at 1.5671 with attentions turning to retail sales as the primary macro driver through trade on Thursday.      

• We expect a range today between 1.7980 – 1.8380. 

Majors:

The Greenback reached fresh seven year highs against its Japanese counterpart as minutes from the Federal Reserves last FOMC meeting intimated the world’s largest economy may be moving toward higher interest rates. In contrast the Bank of Japan opted to maintain the current pace of quantitative easing highlighting the ever widening gap in central bank policies and forcing the Yen down against 31 of its major trading peers. The downward trajectory of the Yen over the past month is most likely to remain the dominant theme as talk of additional easing increases ahead of the newly called election. The U.S Dollar Spot index rallied 0.3 percent as the FOMC minutes suggested a wide ranging debate over tighter monetary policy between voting members. The open Market Committee cited deteriorating global growth conditions and a slowdown in inflationary pressures as key to guiding consumer’s inflation and interest rate expectation buts conceded the threat from weaker international growth was relatively small at present. With attentions now turning to a raft of U.S data sets through Thursday investors will be keenly focused on CPI inflation reports and European Manufacturing data for directional guidance.  

Data releases

• AUD: No Data
• NZD: PPI Input and PPI Output
• JPY: Trade Balance, Flash Manufacturing and BoJ Monthly Report
• GBP: Retail Sales and CBI Industrial Orders
• EUR: Eurozone, French and German Manufacturing PMI and Eurozone, French and German Services PMI
• USD: FOMC Member Tarullo Speaks, CPI, Core CPI, Unemployment Claims, Flash Manufacturing PMI, Existing Home Sales and Philly Fed Manufacturing Index.