The Australian Dollar opens this morning have clambered back through 0.71 US Cents, however investors appear cautious of extending upside gains ahead of a key US Treasury Department currency report. Having traded sideways for much of the Australasian trading session yesterday the AUD found support following a broader USD and equity sell off. The AUD edged toward intraday highs at 0.7130 as the US dollar made fresh two-week lows following a weaker than forecast CPI inflation print reduced bets the Fed will raise rates at faster pace than currently projected.
While seemingly well supported on moves approaching 0.7030/40 the AUD remains under pressure as the current risk off mood, punctuated by a continued equity sell off overnight, hangs over markets and offers little incentive to unwind AUD short holdings. While psychologically supported above 0.70 our attentions now turn to the US Treasury Departments currency report and speculation Treasury Secretary Steven Mnuchin will name China a currency manipulator.
Such a move will only foster greater tensions between Beijing and Washington and signals another escalation in the ongoing trade war. Naming China a currency manipulator will likely force the Yuan through 7 for the first time since the Global Financial Crisis and have a damning impact on the AUD, a proxy for the yuan and Chinese growth story.
Attentions today remain fixed on shifting risk sentiment and the US Treasuries currency report for direction into the end of the week and weekend.
AUD / NZD
Expected Range: 1.0830 – 1.0990
A good session for the Kiwi overnight as the local unit capitalized on a weaker than expected US CPI print out of the worlds largest economy. NZD/USD rose 40 pips on the news and finished up 1.3% on the day to reach levels around 0.6530. Given the Kiwi was the second best performing currency on the day, the AUD/NZD was pushed lower, down from 1.0940 to 1.0900.
Global and NZ equity markets also fell for the second consecutive day with no single trigger able to explain the moves. Worries about the impact of higher oil prices, a sharp rise in US yields and escalating US-China trade tensions have all been put forward as possible drivers.
Looking to the day ahead, NZD traders will be watching BNZ manufacturing PMI data for September before turning their attention towards RBA financial stability review and home loan data out of Australia. With very few risk events ahead for the NZD, it will continue to take cues from global risk sentiment, commodity prices and further fallout in equity markets. On the technical front, NZD/USD remains well supported at the 0.6420 level with any topside moves expected to meet resistance on moves approaching 0.6529.
GBP / AUD
Expected Range: 1.8430 – 1.8830
The Great British Pound continued its march forward as it hit a three-week high at 1.3246 overnight. Opening this morning slightly lower at 1.3220 this morning, the Sterling was buoyed by a number of factors, not least of all, further Brexit optimism.
In the absence of any domestic data the market took direction again from the headlines with a divorce deal reportedly extremely close. Insiders reported that PM May called her inner cabinet in on Thursday to discuss Brexit which is unlike May. One official commented that “the Prime Minister never brings the cabinet together to tell them what’s going on. That’s not her style. It feels to me like the deal is practically done”. Despite this bump in optimism, Brexit headlines remain confusing and conflicted on some issues which did see any further gains as largely muted.
Across the Atlantic, the risk-off sentiment has spilled out from equity markets and weakened the Greenback. It also found little support from President Trump and the softer CPI numbers. Conversely, the Pound has been well supported in this environment as the USD weakened substantially across the board.
Moving into the close of the week, the Sterling continues to keep all eyes on the on-going Brexit negotiations with little on the calendar to drive direction.
AUD / USD
Expected Range: 0.6980 – 0.7180
The USD Index was lower on Thursday on the back of US inflation figures which missed expectations and an increase in Unemployment Claims. The U.S dollar index which measures the Greenbacks strength against a trade weighted basket of currencies touched a near two-week low of 94.99 moving from an intraday high of 95.32. US consumer prices rose less than expected in September by 0.1% and 2.3% for the year through September missing economists' forecasts for a 2.4% rise. The CPI numbers were held back by a slower increase in the cost of rent and falling energy prices, as underlying inflation pressures appeared to cool slightly.
In a separate report the number of Americans filing for unemployment benefits unexpectedly rose for the week ending Oct 6th. Claims rose by 7,000 to 214,000 but still remain at a 49-year low. The labor market is viewed as being very close to full employment which is helping the wage growth story thus fuelling expectations the Fed will increase interest rates again in December.
Looking ahead, we have US Consumer Sentiment and Inflation Expectations as well as two Fed members speaking.
AUD / EUR
Expected Range: 0.6080 – 0.6230
The Euro maintained its positive momentum and has held above the 1.15 handle overnight as the European Central Bank was positive in its policy meeting minutes for September.
French Inflation declined for the month of September, falling back by 0.2% after a rebound in August of 0.5%. EUR/USD moved to one-week highs following the release of minutes as policy makers are on plan to end their stimulus programme this year. Inflation levels remain consistent as the Euro rallied to an overnight high of 1.1599.
With the greenback weakening following the release of lower than expected inflation figures, the Euro has held firm and looks to move through 1.16 in trading today, opening at 1.1590.
On this evenings agenda is the release of German Final CPI and European industrial production figures.
AUD / CAD
Expected Range: 0.9180 – 0.9250
The Canadian dollar has edged higher in the Thursday on the back of ensuing risk aversion fuelled USD/CAD demand. U.S. Equities continued to trend lower overnight the Dow Jones industrial average closed down more than 2% and has shed more than 1,300 points since Tuesday.
On the local data front yesterday New Housing Price Index (NHPI) for August were mainly unchanged. In the last 12 months New house prices rose 0.4% year over year in August, with annual price advances gradually slowing since October 2017.
From a technical perspective, the USD/CAD pair is currently trading at 1.3031. We continue to expect support to hold on moves approaching 1.2950 while now any upward push will likely meet resistance around 1.3108.
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