The Australian Dollar opens sharply lower this morning when valued against the US Dollar thanks to a weakening in risk appetite. The AUD/USD was dragged from 0.7300 down to 0.7211 as European and US stock markets took a hit with the Dow losing over 400 points after the opening bell. In addition to a poor performance in equities, Chinese Finance Ministry official Tan Long stated that the downward pressure on the economy had strengthened on increasing uncertainties. Worries over the economic slowdown in China caused the AUD to weaken amid Australia's strong trade ties with China.

Following yesterdays release of the RBA’s monthly minutes, there were increasing notes of optimism which corresponds with the RBA’s more upbeat growth and employment forecasts published earlier this month. The RBA sees the labour market strengthening with a decline in the unemployment rate and also seem to be upbeat on business investment. They did indicate that the next move would be up than down but there is no case for a near-term adjustment in monetary policy.

Looking ahead, today sees the release of the MI Leading Index. The Melbourne Institute’s composite indicator is based on nine economic figures, mostly published. Nevertheless, it provides a good overview of the economy. The indicator dropped in the September by 0.1% and may move up now.



Expected Range: 1.0610 – 1.0780

The New Zealand dollar slipped back below 0.68 through trade yesterday as risk appetite soured and milk prices fell. Having touched intraday highs at 0.6865 the kiwi turned sharply lower as market demand for risk deteriorated in the wake of an extended equity sell off. Concerns surrounding persistent trade tensions and the broader impact on US domestic growth, when coupled with reduced expectations for US fiscal stimulus have dampened demand for global stocks and prompted a marked sell off (nine percent) since September.

The equity rout prompted a spike in volatility indicators as the VIX index jumped 24, indicative of the broader push to safety and haven assets. Coupled with a 3.5% dip in milk prices and the NZD was forced toward intraday lows at 0.6794. Safe haven demand and broader commodity-based price pressures continue to weigh on the NZD, limiting upside gains through the short term.

Attentions now turn to a host of US macroeconomic indicators as drivers through trade on Wednesday and an add on to the broader risk narrative.



Expected Range: 1.7480 – 1.8050

Overnight we saw the Pound Sterling fall below the 1.2800 figure during US trading hours, undermined by the endless Brexit drama and resurgent dollar's demand. Growing opposition to Prime Minister Thresa May’s draft arrangement has hit sterling hard the recent week with the GBP/USD pair falling nearly 3 percent from a Nov. 7 high of 1.3176. The Sterling did rebound late in the session after Bank of England Governor Mark Carney gave his backing to a Brexit deal.

On the release front there is one scheduled release today monthly Public Sector Net Borrowing.

From a technical perspective, the GBP/USD pair is currently trading at 1.2781. We continue to expect support to hold on moves approaching 1.2765 while now any upward push will likely meet resistance around 1.2845.



Expected Range: 0.7130 – 0.7330

The Greenback recovered from its early week lull overnight, forcing its way up by 0.69% to 96.83 against a basket of currencies (DXY). Despite what the strong showing would suggest, the US Dollar was more the beneficiary of souring market optimism than any other one factor.

With very little on the economic calendar to excite markets, attentions turned to broader, macro-economic variables for direction. Concerns around the outlook for global economic growth continued to spook markets with trade tensions continuing to undermine market confidence. As the trade tensions ratchet higher in the new year, the market continues to prepare for a capacity pressure bite, cost rises and fading US fiscal stimulus as signs of things to come. Oil prices and equities markets lurched significantly lower, adding to the general volatility and risk aversion for the day. White House Economic Advisory Larry Kudlow attempted to allay fears by saying “Trump has an optimistic view on US-China trade amid ‘very detailed communications’” but this failed to stem the tide. Within this context, the Greenback showed its value as a safe-haven currency finding itself well bought and rose against a number of its counterparts.

Moving into Wednesday, the US Dollar is again set to enjoy another quiet day on the economic calendar. Direction is again set to be driven by the headlines.



Expected Range: 0.6280 – 0.6440

The Euro traded steadily into the European session, reaching highs of 1.1465 before any chance of further gains into 1.1500 stalled overnight as markets grow increasingly concerned about the health of the Italian economy. Italian 10-year bonds reached one-month highs on Tuesday of 3.62% following comments from Italian Deputy Prime Minister Luigi Di Maio that the EU is acting like a wall towards Italy and yields are widening because of the EU current stance.

Both European equities and Italian bank shares hit two-year lows as the European single currency plummeted through support at the 1.14 handle and finished 0.75% lower for the day. Eventual lows were seen at 1.1358 as uncertain talks between Italian ministers and the European Commission continue to hamper the EUR/USD pair.

Budget concerns have also been raised in Spain as 10-year yields rose to one month highs of 1.67% as it now looks like Spain’s minority governments will be unable to pass the 2019 and realistically could mean an early election in 2019.

Market participants now look towards tomorrow evenings ECB Monetary Policy meeting accounts as the EUR/USD opens this morning at 1.1370.



Expected Range: 0.9525 – 0.9680

The Canadian dollar is weaker this morning when valued against its U.S. counterpart with the Greenback breaking through the 1.3300 figure on the back of a sell-off in equity markets. The USD/CAD pair reached a daily high of 1.3317, the highest level since June 28, 2018. So far the Greenback gained 140 pips during the last 24 hours.

On the release front, there are no Canadian data releases on the schedule.

From a technical perspective, the USD/CAD pair is currently trading at 1.3302. We continue to expect support to hold on moves approaching 1.3270 while now any upward push will likely meet resistance around 1.3330. 

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