The Australian Dollar enjoyed a tumultuous Thursday trading session as it reversed most of the gains earnt earlier in the week. Opening this morning at 0.7376, the Aussie was just another victim of a rampant Greenback which strengthened across the board.
Initially the day started well for the Aussie as trade balance and CPI news from China supported a buoyant AUD. The Aussie not only managed to hold above the 0.74 handle but break to the upside to briefly flirt with the 0.7450 resistance level. This was quickly unwound however, as traders took profit on their positions, making an about-face and going USD positive. There was no single, primary market catalyst that drove the market shift but the move was certainly exacerbated by bullish comments by the Federal Reserves’ Evans. Evans was indeed particularly bullish on the US economy noting that fundamentals are “extremely strong”.
Attentions now turn to the RBA to close out the week with a Monetary Policy Statement slated for release later today.
AUD / NZD
Expected Range: 1.1030 – 1.1230
The Reserve Bank of New Zealand (RBNZ) held the official cash rate steady at 1.75 percent yesterday. The RBNZ mentioned that while recent economic growth has moderated, they expect it to pick up pace over the rest of this year and be maintained through 2019. As a result of the bearish comments NZD/USD pair fell almost half a U.S. cent. We now expect the RBNZ to keep rates at this level through 2019 and into Q4 2020, longer than initially projected.
On the local data front this morning we saw the release of Business NZ Manufacturing Index which is a survey of manufacturers which asks respondents to rate the relative level of business conditions. The result New Zealand Business NZ PMI down to 51.2 in July from previous 52.8.
From a technical perspective the NZD/USD pair is down 1.53% from yesterday’s high of 0.6757. The kiwi is currently trading at 0.6606. We continue to expect support to hold on moves approaching 0.6573 while now any upward push will likely meet resistance around 0.6779.
GBP / AUD
Expected Range: 1.7280 – 1.7580
The Great British continued its slide overnight, consolidating below the 1.29 handle against the US Dollar as it failed to gain upside momentum at the start of the European session. Opening the morning at 1.2880, RICS house price balance saw an increase of 4% for the month of July as the cable drifted higher to reach an intraday high of 1.2910.
Sterling was then battered against the US Dollar in overnight trading as Brexit fears continue to support the bearish sentiment in the markets, seeing an intraday low of 1.2820. Renewed strength for the US Dollar continued in North American trade as further announcements of tariffs by the United States. Investors look ahead to this evenings Q2 GDP print in the UK. Expectations are an increase of 0.2%, with any positive adjustments to potentially embolden the Bank of England in its likelihood of further increases of interest rate hikes in the future.
The Great British Pound opens this morning at 1.2825.
AUD / USD
Expected Range: 0.7330 – 0.7430
At the time of writing the U.S dollar index which measures the Greenbacks strength against a trade weighted basket of currencies is up 0.60% at 95.61. As a risk averse tone persisted in the markets for a second consecutive session and the U.S dollar has been well supported despite a mixed bag of data out of the States. Initial jobless claims for the week ending August 4th declined to 213k, from 219k which adds evidence of a healthy labour market. Producer Prices were flat for the month of July, markets were expecting a 0.20% increase.
Out the G10 currencies, the AUD and NZD have been hardest hit. AUD/USD lost 1% on Thursday, falling from 0.7445 down to 0.7370. The Kiwi has shed over 2% dropping from 0.6758 down to 0.6610 after the RBNZ assistant Governor John McDermott suggested the chances of a rate cut had increased. EUR/USD down 0.8% on the day buying 1.1526 and the Pound down at 1.2825 with lingering concerns of a no-deal on Brexit.
In other news, the Turkish Lira has hit record lows against the USD after a Turkish delegation returned from meeting US officials in Washington with no apparent solution to a diplomatic rift that has opened up between them. The Lira stands at 5.5453 vs the USD which is an all-time low.
Looking ahead, US CPI for July is due out and we are expecting no change to the headline figure at 2.3%.
AUD / EUR
Expected Range: 0.6320 – 0.6420
The Euro moved lower through trade on Thursday edging back toward key psychological supports touching intraday lows at 1.1526. Having held onto gains above 1.16 through early trade the Euro met steep selling pressures as investors poured support behind the worlds base currency on bets Friday’s CPI print will only promote the Fed’s tightening of Monetary Policy.
The EUR/USD rebound has unraveled throughout the last week as the ECB struggles to maintain or meets its mandate for price stability while the USD finds continued support amid trade tensions and expectations of continued robust growth. A test of June lows at 1.1508 could open the door to a deeper correction and test of psychological support at 1.15. While we maintain medium and longer-term outlooks remain upbeat short-term supports are being tested and a break lower may exacerbate current weakness.
Attentions now turn to this evenings US CPI print. A strong read may be enough to refuel dollar bulls and force the Euro lower into the weekly close.
AUD / CAD
Expected Range: 0.9580 – 0.9690
The Canadian dollar edged lower through trade on Thursday moving toward the bottom end of recent tightly controlled ranges. Having touched intraday highs at 0.7692 the CAD succumb to broader USD gains and touched intraday lows at 0.7654.
Having given up almost 6 cents year to date losses appear to have stalled throughout much of the last 6 weeks as the Loonie has maintained a 50 point trading range. The pace of the US advance has certainly slowed and there is a renewed optimism that repackaged NAFTA agreement can be negotiated. We anticipate the CAD will continue to uphold a tighter trading handle ahead of a final agreement, however should negotiations break down the door opens for a sharp downward correction.
Attentions today turn US CPI data as the headline item on the docket moving into the weekly close. A strong print may be enough to refuel dollar bulls and test recent support and resistance.
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