AUD upturn stalls on Fed commitment to normalising monetary policy

AUD

The Australian dollar edged lower through trade on Thursday having fallen short of extending its recent upside correction. The Aussie failed to push beyond 0.73, touching intraday highs at 0.7295 before moving toward intraday lows at 0.7249 following the Fed’s commitment to tighter monetary policy. With little domestic data on hand the AUD was at the mercy of offshore stimuli and succumb to broader USD upside.

Despite failing to break above 0.73 there is a sense of renewed optimism surrounding the AUD this week. Concerns surrounding the outlook of US fiscal stimulus and the ill effects of political gridlock dampening growth coupled with an improving outlook for US/China trade relations have emboldened investors to drive the AUD higher and prompt a break outside a 9 month downtrend channel.

With little of note on the domestic docket focus returns again to key trade discussion with the longer term AUD outlook heavily reliant on the next round of trade talks between Trump and XI Jinping at the end of the month. Ongoing positivity could foster a break above 0.73 and drive renewed short term support for the AUD as a proxy to Chinese growth.

AUD / NZD

Expected Range: 1.0660 – 1.0870

The Kiwi stayed quiet in overnight trading after rising to its highest level in more than two months on Wednesday. Consolidating below 0.68, the Kiwi opens this morning at 0.6749 after an impressive rally over the course of the week.

With little on the economic calendar to digest, direction was derived from its US counterpart. The US FOMC rate announcement came in as widely expected but the guidance certainly firmed expectations for a December rate hike.

Moving into the close of the week, the kiwi has little to motivate momentum but will look to US PPI figures for guidance.

GBP / AUD

Expected Range: 1.7850 – 1.8280

The Great British Pound retreated significantly in overnight trading on the back of further Brexit headlines and a bullish US FOMC statement. Opening this morning at 1.3060, the Sterling looks for further support from on-going Brexit negotiations.

The Sterling lost some of its positive sheen overnight as conflicting headlines undermined a potential withdrawal agreement. Meetings between the UK and EU are taking place on an almost daily basis with the latest report by The Time suggesting that a full withdrawal could be published as soon as next Tuesday. Other reports suggest it is weeks away. Nevertheless, hope for a Friday announcement have been dashed which saw the Pound sold heavily.

The other side of the equation also didn’t help the Sterling’s fortunes with the FOMC releasing their statement on monetary policy. Tellingly, their guidance has not shifted, firming market consensus around a December rate hike for the US.

Moving into the close of the week, the Pound has a number of important domestic readings to digest. Month on Month GDP and Manufacturing Production are set to steal the limelight although attentions will also remain on any new Brexit headlines.

AUD / USD

Expected Range: 0.7030 – 0.7320

The US dollar advanced across the board on Thursday following the Federal Reserves commitment to tighter monetary policy. As expected the FOMC left rates on hold but proffered an upbeat statement and assessment of future economic growth little changed from its last meeting in September. Inflation remains near 2 percent, the fed target mark while the labour market continues to drive improving consumer confidence and an uptick in consumer spending.

The dollar index advanced six tenths of a percent recouping much of the losses sustained in the wake of Tuesday congressional midterms. Initial fears Democratic control of the House would stifle future fiscal stimulus and forestall additional tax cuts weighed on the world’s base currency as investors priced in a moderation in the pace of growth and a possible adjustment in Fed policy. Thursday’s FOMC statement has helped assure investors the Fed will honour its commitment to monetary policy normalisation and rejuvenated calls for a December rate hike.

Attentions now turn to producer inflation data, as a precursor to underlying consumer price pressures, and consumer sentiment as key macroeconomic drivers into the weekend.

AUD / EUR

Expected Range: 0.6300 – 0.6450

The Euro fell through trade on Thursday giving up Tuesdays gains and slipping back below 1.14. Mixed domestic macroeconomic indicators coupled with strong and upbeat Federal Reserve rhetoric combined to drive the worlds base currency higher and force the common currency toward intraday lows at 1.1356.

French and German trade balance numbers proffered a mixed assessment of broader European performance and did little to dispel concerns the broader European economy is struggling to stave off a period of sustained sluggishness. This persistent softness paired with commentary from the FOMC, following its November policy meeting, drove the Euro lower as the gap between economic performance and central bank monetary policy continues to widen.

While well supported on moves approaching 1.1320 and 1.13 focus has shifted back to contrasting central bank policies and ongoing trade disputes as the key drivers governing direction, while the specter of Italian debt looms large over a sustained upward effort. Attentions today turn again to US economic performance with little of note of the domestic calendar while political headline risk promises to alter direction into the weekend.

AUD / CAD

Expected Range: 0.9380 – 0.9620

The Canadian dollar slipped lower through trade on Thursday briefly falling though 0.76 to mark intraday lows at 0.7586. With little domestic data on hand to drive direction the Loonie succumb to broader USD upside following the Fed’s commitment to normalising monetary policy. Investors were seeking assurances the FOMC would maintain the current program of interest rate adjustments following the shift in political power earlier this week. Concerns Democratic control of the House would likely stifle fiscal stimulus and obstruct future tac cuts weighed on markets and heightened fears for a correction in Fed decision making. Confirmation the FOMC will maintain its current policy setting emboldened US dollar bulls and forced the Loonie lower.

The latest Fed statement only highlights the widening gap between US and Canadian monetary policy with markets pricing in a fed rate hike before year end while the BoC are expected to leave rates on hold into the new year.

Attentions now turn the US docket again for direction through trade on Friday while US/China trade relation continue to driver longer term growth. A resolution to recent trade hostilities could help drive confidence in Chinese growth, fostering an uptick in oil prices and supporting a bounce in the CAD. With Trump and Xi Jinping scheduled to meet at the end of the month we expect short term range bound trading with breaks driven by headline data events.