Heightened US rate expectations and rising European political uncertainty drive direction

AUD / USD

Expected Range: 0.7500 – 0.7630

The Australian Dollar moved within a tight range intraday between 0.7567 and 0.7595 and barely reacted to yesterday’s Retail Sales data. There was a slight rebound in Retail Sales which rose 0.4% in January moving in line with expectations. Looking at an annual basis, growth in sales improved marginally from 3.0% in December to 3.1% in January, the turnaround was led by household goods spending. ANZ Job Ads saw a drop by 0.7% last month however, given the hefty gain of 3.9% in January it still shows the annual growth at healthy levels.  As we moved into the European session, the Aussie tested levels of 76c assisted by uncertainty concerning the outcome of the French elections, the gains were immediately reversed as the prospect of a March rate hike next week by the US Federal Reserve is at the forefront of investors’ minds. Today we see the RBA’s interest rate decision which will be accompanied by the monthly Statement, markets are expected the central bank to hold and remain neutral on the policy stance, markets have been pricing in a 32% chance that the RBA will raise rates by February 2018. The pair is currently sitting around levels of 0.7585. 

NZD / USD

Expected Range: 0.6950 – 0.7050

The New Zealand slumped lower through trade on Monday moving through the psychological 0.70 handle to touch intraday lows at 0.6961. With little domestic macroeconomic data on hand to drive direction the NZD was at the mercy of wider risk flows and broader USD sentiment. Increasing expectations the Federal Reserve will raise bench mark interest rates next week drove the USD higher as the threat of a narrowing in the Kiwi’s yield advantage forced investors away from the commodity driven unit. With attentions now turned to key Non-farm payroll numbers Friday as the final hurdle ahead of next week’s FOMC meeting investors will be keenly attuned to Wednesday Dairy trade auction for interim direction.   

GBP / AUD

Expected Range: 1.6000 – 1.6300

The Great British Pound saw further weakness as it hit overnight lows of 1.2220 against the US Dollar as little market news hit the headlines. Starting the day testing highs of 1.23, the Sterling continued its downward trajectory as Janet Yellen all but sealed confirmation a rate hike is on the cards in this month’s US Federal Reserve meeting. BOE Monetary Policy Committee Member Charlotte Hogg spoke overnight but gave little insight on the future direction of monetary policy. U.K markets look to BRC retail sales monitor this evening and then onto Chancellor Phillip Hammonds U.K Budget release on Wednesday where it is expected to release monetary figures to set aside for exit from European Union. Cable opens this morning at 1.2235.

USD, EUR, JPY

The US Dollar ticked higher through trade on Monday amid heightened speculation the Federal Reserve will raise rates next week and increasing political uncertainty in Europe dampened investors’ appetite for risk. Expectations the FOMC will amend its current monetary policy platform continued to broaden, a fact illustrated by another significant uptick in the CME Groups Few Watch Tool. The past week has seen a dramatic shift in market sentiment with 86% of market participants now pricing in a rate amendment, up from just 25% this time last week. The shift in interest rate prospects has forced the Euro back below 1.06 and when coupled with increasing uncertainty surrounding the outcomes of the Dutch and French elections the Euro is vulnerable to further downward pressures. The Euro suffered increasing uncertainty overnight after Former French PM Allain Juppe stood aside and ruled out replacing scandal ravaged centre right candidate Francois Fillon. The decision opens the door to nationalist Marine Le Pen with investors wary of a Brexit or Trump style surprise. While election turmoil and speculation continue the Euro will likely remain subdued and a move back toward 1.0350 – 1.04 is a real possibility.