AUD remains supressed as Fed minutes suggest further tapering

Australian Dollar:

After a relatively subdued Australasian session yesterday the Australian dollar traded lower overnight. A domestic docket free of any meaningful data meant the Aussie was at the mercy of a stacked U.S calendar as investors keenly awaited the Fed’s FOMC December minutes. While no clear tapering schedule was established the minutes did show that Fed officials believed the benefits of continued Bond buying were diminishing, which in itself was confirmation enough for investors that tapering will continue throughout 2014. The Australian dollar opens this morning within recent ranges at 0.8906 as local traders turn their attentions to domestic Retail Sales and Building Approvals while offshore stimuli will come from Chinese CPI later today and U.S Non-Farm Payrolls Friday.   

• We expect a range today of 0.8850 – 0.8975

New Zealand Dollar:

Again the domestic economic calendar offered nothing to drive direction and the New Zealand dollar traded lower as investors reacted to stronger US jobs data and US Federal Reserve meeting minutes. Having breached 0.83, a previous point of resistance, during domestic trade the Kiwi was forced lower overnight as suggestions that Fed officials saw wanning effectiveness in future bond buying coupled with the strongest annual pace of jobs growth according to ADP employment change reports saw the US dollar advance against most major currency counterparts. The New Zealand dollar will again look offshore for directional impetus as the local docket remains free of headline data and investors attentions will turn to Chinese CPI ahead of a bus European and North American sessions.

• We expect a range today of 0.8225 – 0.8325

Great British Pound:

The Pound managed to parry US advances yesterday edging higher throughout the day. Despite a reduction in the Halifax House Price Index adding to a series of downbeat announcements of late the Cable managed to maintain support. Wednesday’s advance suggests the selloff that proceeded Mondays lower than expected Services data was a little overdone and investors are squaring positions leading into today’s Bank of England rate announcement and accompanying MPC statement. The Sterling opens stronger against both the Australian and New Zealand Dollars swapping hands at 1.8460 and 1.9903 respectively.  We expect a range today of 1.8380 – 1.8510

Majors:

The Greenback has strengthened against a basket of currencies after stronger than expected jobs data and the release of FOMC minutes. The Federal Reserve’s December transcript provided further insight into administrators tapering expectations as “A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continued”. The suggestion that continued stimulus was beginning to return a diminished benefit was enough for investors to assume continued tapering throughout 2014 despite the absence of a clear and concise reduction schedule. US Dollar gains were further solidified as a preliminary ADP employment change report suggested more jobs were added in December than expected. Unemployment is a key focus for the Federal Reserve in reducing further Bond purchases and any improvement in the labour force will only serve to solidify market expectations of continued tapering. The Greenback trades now at 1 month highs against the Euro and 4 month highs against its 10 major counterparts according to Bloomberg’s Dollar Spot Index. Further direction will come from the ECB meeting today and Non-Farm Payroll due Friday as we roll into a busy and volatile end to the week.      

Data releases

• AUD: Building Approvals and Retail Sales
• NZD: Building Consents and ANZ Commodity Prices     
• JPY: No Data
• GBP: Trade Balance, Asset Purchase Facility, Official Bank Rate and MPC Rate Statement         
• EUR: French 10year Bond Auction, German Industrial Production, ECB Minimum Bid Rate and ECB Press Conference.  
• USD: Challenger Job Cuts, Unemployment Claims, Natural Gas Storage and 30 year Bond Auction.