Aussie marches on; buoyed by demand for a higher yield

Australian Dollar:

The Australian Dollar rally continued through trade on Tuesday comfortably breaching resistance at 0.7250 and touched intraday highs at 0.7331. Buoyed by an upbeat RBA announcement wherein the central bank opted to maintain the current cash rate and an expanding Chinese services sector the Aussie moved through 6 week highs and marked a 2nd consecutive monthly advance against the Greenback. The RBA cited improved consumer confidence and upbeat employment data throughout October as markers for support of the current stimulus program easing pressure surrounding more rate cuts and cementing the AUD as highly sort after high-yield currency. Attentions today turn again to Governor Stevens for affirmation of his recent policy shift while quarterly GDP numbers headline the macroeconomic docket. A strong Gross Domestic Product print could further dampen calls for additional interest rate easing and push the Aussie through resistance at 0.7334 and 0.7380 while support remains firm on moves below 0.7180.

• We expect a range today of 0.7180 – 0.7380

New Zealand Dollar:

The New Zealand dollar followed its antipodean counterpart higher through trade on Tuesday buoyed by softer U.S manufacturing data and an upbeat Global Dairy Trade Auction. The Kiwi rallied through 0.6650 touching intraday levels at 0.6687 breaching 1 month highs and highlighting demand for an increased yield return.  Average dairy prices rose 3.6% adding doubt to calls for further RBNZ rate cuts and placing a question mark over next week’s OCR announcement. Attentions today turn offshore for headline directional queues with investors paring positions into tomorrows all important ECB policy announcement.

• We expect a range today of 0.6550 – 0.6750

Great British Pound:

The Great British Pound rallied through trade on Tuesday and despite touching intraday highs at 1.5120 struggled to mount a meaningful upswing in the face of weaker US domestic data. Buoyed by a slowdown in U.S manufacturing cable moved away from 7 month lows however gains were capped by a softer than expected expansion across the U.K’s manufacturing sector and a downbeat inflation outlook. We anticipate yesterday’s rally to remain a short term correction with long-term diverging monetary policy paths supporting Greenback rallies into the New Year. Attentions today turn to Construction PMI and commentary from key FOMC and Fed officials ahead of Fridays Non-farm payroll print.

• We expect a range today of 2.0350 – 2.0850 

Majors:

The Greenback edged lower Tuesday after a decline in U.S manufacturing raised questions as to the timing and pace of a Fed rate adjustment and the speed of divergence between FOMC and ECB monetary policy. ISM manufacturing PMI contracted for the fifth consecutive month reaching its weakest point in six years dampening employment prospects and inflationary pressures. In contrast the European Monetary Union (EMU) enjoyed an upbeat macroeconomic docket bolstered by declining German and EMU unemployment rates and a continued expansion of the manufacturing sector. The Euro recouped losses suffered earlier this week rallying off near 8 month lows and breaking back above 1.06 to touch intraday highs at 1.0636. Attentions sit squarely with the ECB and Thursday’s policy announcement wherein there is still widespread expectation the Central bank will announce additional quantitative easing measures. The question is what is the ECB preferred medicine for an ailing and stagnant monetary union? Despite Tuesdays Euro rally the underlying bullish Greenback trend remains intact and we still anticipate a move to and through 1.05/1.0450 in the short to medium term with further moves toward parity possible moving through the New Year. Focus today turns to Fed Chair Janet Yellen as she discusses the U.S economic outlook in a Washington address while the ADP Non-Farm employment change report will offer an insight into Friday’s critical employment and labour market print.

Data releases:

• AUD: RBA Governor Stevens Speaks and 3rd Quarter GDP
• NZD: ANZ Commodity Prices m/m
• JPY: Monetary Base y/y
• GBP: Construction PMI
• EUR: CPI Flash Estimate, Core CPI Flash Estimate, PPI m/m and Spanish Unemployment Change
• USD: FOMC Member Lockhart Speaks, ADP Non-Farm Employment Change, Fed Chair Yellen Speaks, Revised Non-Farm Productivity q/q, Revised Unit Labour Costs, Crude Oil Inventories, Beige Book and FOMC Member Williams Speaks.