Demand for higher yields bolster AUD and NZD fortunes

Australian Dollar:

The Australian Dollar crept higher throughout trade on Monday testing key technical resistance at 0.7250 and touching intraday highs at 0.7248. With little domestic economic data to hand the AUD continued to find direction and support in calls for higher-yielding assets. In an environment wherein many central banks are adopting easier and looser monetary policy programs or at the very lease committing to long term accommodative platforms investors have bolstered demand for increased returns through which the  Aussie has benefited.  The question is will the run continue? Attentions today turn to the RBA and its monthly cash rate announcement. It is widely anticipated the Central Bank will leave rates unchanged shifting investors focus onto the accompanying rate statement. Any suggestion of longer term stability in the current monetary policy program could help push the AUD higher and test 0.728/0.73 ahead of Key Chinese manufacturing prints and Friday’s crucial Non-Farm payroll numbers.

• We expect a range today of 0.7170 - 0.7300.

New Zealand Dollar:

The New Zealand dollar rallied through trade on Monday recouping losses suffered into last weeks close and testing resistance at 0.66. The Kiwi touched intraday highs at 0.6590 buoyed by an improved ANZ business confidence report and demand for higher yielding assets. In an environment of loose and easier monetary policy the Kiwi has benefited from investors seeking an increased return as attentions turn to the ECB and FOMC for further policy guidance. Directional focus will turn to the fortnightly Global Dairy Trade Auction ahead of Key Chinese manufacturing numbers and US Employment data.

• We expect a range today of 0.6450 – 0.6650

Great British Pound:

The Great British Pound continued to test new 7 month lows throughout trade on Monday dipping below 1.50 and touching intraday lows at 1.4992 before rebounding back through the psychological reference point. Comments from BoE policy members at the weekend affirmed expectations the Central Bank will be forced to maintain a program of accommodative monetary policy throughout 2016. The remarks served to highlight the gap in diverging interest rate policies and if the Fed and FOMC tighten monetary policy later this month as expected we expect a break out below 1.50 toward April lows. Attentions today turn to the BoE’s financial stability report and bank stress test results as markers for economic health and direction.

• We expect a range today of 2.0750 – 2.0950 

Majors:

Diverging monetary policy expectations continued to drive direction throughout trade on Monday steering the Greenback to eight and a half month highs against a basket of currency counterparts. Investors resumed shorting EURO positions on expectations the European Central Bank will announce further stimulus measures when it meets later this week. The weight of expectation has been exacerbated over the last month with investors heavily pricing in a deeper cut to already negative deposit rates or an expansion to the ECB’s current bond buying agenda. The 19 nation shared unit fell below last week’s low touching 1.0557 signalling a shift below recent supports at 1.06. The Euro has depreciated some 4% throughout November and over 12% through the year thus far; the question is will the selloff continue? While we expect continued pressure in the lead up to Thursdays ECB policy meeting and accompanying press conference attentions this week will also be keenly attuned to U.S data sets, namely Fridays Non-Farm Payroll release. Continued macroeconomic stability will solidify claims and calls for an FOMC rate amendment and highlight the gap in monetary policy.  With markets now eyeing a move to 1.05 affirmation of increased ECB easing and a hike in US interest rates could see EUR/USD test April lows at 1.0450.

Data releases:

• AUD: Building Approvals, AIG Manufacturing Index, Current Account Balance, RBA Cash Rate, RBA Rate Statement and Commodity Prices.
• NZD: Overseas Trade Index and GDT Price Index
• JPY: Final Manufacturing PMI, Capital Spending and 10 Year Bond Auction
• GBP: Bank Stress Test Results, BoE Financial Stability Report and FPC Statement
• EUR: Spanish, Italian, French, German and EMU Manufacturing PMI, German and Italian Unemployment and EMU Unemployment.
• USD: ISM Manufacturing, Construction Spending, FOMC Member Evans Speaks and Total Vehicle Sales.