AUD under pressures as banks move on interest rates

AUD

The Australian Dollar opens this morning as one of the worst performing currencies in overnight trading, shedding 45 points to 0.73. The Aussie did recover slightly however, to open this morning at 0.7308 after commodity prices and a softening USD supported the Aussie somewhat.

The catalyst for the fall was driven by Westpac’s decision to raise variable mortgage rates by 14bps, the first of the four major banks to do so. Westpac cited short-end funding costs as the reason for the increase with the BBSW rising 16bps in the 3-month bank bill market. Australian markets responded almost immediately with bond markets also feeling the pinch. Analysts suggest the fall may have implications on the RBA’s interest rate guidance with an even slimmer chance of an interest rate hike now on the cards. Currently, the first hike is now priced for Q3 of 2020.

It wasn’t all negative news for the Aussie however with a stark recovery in commodity prices driving demand for the currency. While only marginally affecting the Aussie, the currency did manage to hold above the 0.73 mark with the support of commodity markets. Demand for the Pair was also heightened as market concerns over a tariff ridden world slowly subside on the news that the US is brokering new deals in North America. The news supported a risk-on market sentiment that saw demand for the Aussie continue to build. Nevertheless, none of the news could help the Aussie too much as it opens this morning firmly focused on interest rates.

The Aussie now turns to Private Capital Expenditure and further headlines to drive direction this Thursday.

 

AUD / NZD

Expected Range: 1.0810 – 1.0980

The New Zealand dollar maintained a largely tight trading band through Wednesday, edging back below 0.67 before rallying into the close. Having held onto moves above resistance at 0.67 for much of the Australasian session the NZD followed its antipodean counterpart lower touching intraday lows at 0.6685. News Westpac will raise Australian home owners variable mortgage rates by 14bps surprised markets and forced the AUD sharply lower as the RBA will likely now extend its period of neutral monetary policy through H1 next year. The NZD surged against the AUD, advancing some 7- points to test 0.92.

Attentions now turn to ANZ business confidence report. A soft read will only further dampen business investment and consumption expectations and do little to force the RBNZ to reconsider its current policy setting. We expect the NZD will continue to meet selling pressure on moves approaching 0.6750 with support through the short term holding at 0.6560.

 

GBP / AUD

Expected Range: 1.7610 – 1.7980

The Great British Pound rallied through trade on Wednesday outperforming all other G10 counterparts following optimistic commentary from EU negotiators. Chief EU mediator Michael Barnier said the EU was prepared to offer the UK a deal that is does not have with other trading partners, a deal that would include an “ambitious free trade agreement”. While the comments were caveated with the usual warnings they offer investors a reprieve from the recent diatribe of rhetoric hinting toward a “ No Deal Divorce”. Sterling surged back through psychological resistance at 1.30 to touch 1.3032.

While the market Is likely to remain nervous until greater clarity and specifics are available the latest comments provide renewed hope a deal can be struck and given then heavy shorting of GBP positions through the last month enabled the strong market response yesterday.

With little of note on the macroeconomic docket today attentions turn to ongoing Brexit chatter for direction moving forward. Should optimism hold we would expect Sterling to maintain moves above 1.30 through the short term.

 

AUD / USD

Expected Range: 0.7205 – 0.7350

The United States Dollar opens marginally lower against a basket of currencies, opening this morning at 94.54 on the US Dollar Index. The Greenback enjoyed an uneventful day with little to excite markets with the focus firmly fixed on on-going trade discussions.

The day did have a few notable releases with quarter on quarter preliminary GDP posting a better than expected result of 4.2%. Crude Oil inventories also fell further to -2.6m barrels reflecting the growth and inflationary pressures in the US economy. Despite the positive economic news, the Greenback did very little as the focus remained on on-going trade talks. With the US-China trade war looming in the background, the market focused primarily on the revised NAFTA dialogues in North America. Markets reacted positively to the news that Canada and the US were approaching a deal, further strengthening the risk-on environment seen throughout the week. Ultimately however, it was a day of minimal volatility.

The Greenback continues its quiet week into Thursday with little to drive momentum for investors. Again attentions remain fixed on on-going trade talks and the headlines.

 

AUD / EUR

Expected Range: 0.6180 – 0.6280

During the Asian trade on Thursday the EUR/USD further declined carrying losses from the previous North America session. As we saw the European markets open came the release of German GfK Consumer Climate and the Euro was dragged further touching a low 1.1652. The survey showed that mood among German shoppers has deteriorated unexpectedly for the second month in a row heading into September. The GfK research institute said its consumer sentiment indicator, based on a survey of around 2,000 Germans, fell to 10.5 going into September from 10.6 a month earlier casting some doubt about the strength of a consumer-led upswing in Europe's largest economy.

The drop however was short-lived as we saw sentiment improve in the markets and the US dollar Index pullback. Despite US GDP figures recording growth for the June quarter coming in at 4.2% the EUR/USD pushed through resistance levels of 1.17 and is currently changing hands at 1.1707 at the time of writing.

Looking ahead, German Import Prices, Preliminary German CPI and Spanish Flash CPI is all due later today.

 

AUD / CAD

Expected Range: 0.9380 – 0.9510

The Canadian Dollar maintained a largely tight trading band throughout Wednesday as investors squared positions while trade talks continue to move forward. Following the weeks earlier bilateral trade agreement between eh US and Mexico the Loonie found support on renewed hopes a NAFTA deal could be struck before to long and ongoing talks seeming support such optimism as a tri lateral trade agreement looms ever closer.

Friday remains a crucial tipping point in the current round of negotiations. President Trump marked Friday as a deadline for all three parties to reach an in-principal deal, however while possible it seems unlikely as Canada will not be bullied into a trade pact it feels is unbalanced. With any new pact requiring at least 90 days to pass through congress before being ratified it is unlikely we will see a full scale reform before year end.

Attentions remain with ongoing negotiations with long term direction keenly dependent on the outcome of future trade agreements.