US Yields drives greenback higher

AUD

The Australian dollar suffered it’s second day of declines against the worlds base currency with currency moves continuing to be largely yield driven. With US 2 and 10 year treasury yields rallying to near decade highs overnight on the back of some strong US retail sales numbers, the AUD/USD slipped from 0.7520 to touch lows of 0.7448 before rebounding into this mornings with the pair changing hands this morning at 0.7472. These moves also coincided with falls in equities, gold and Iron Ore which only reinforced the downward pressure on the local currency.

In contrast to these declines against the worlds base currency, the Australian dollar fared considerably better against the other major crosses largely trading sideways against the NZD, EUR and GBP whilst suffering a small decline against the CAD.

Moving to the day ahead there is a raft of releases that may impact the Australian dollar. Whilst traditionally not a market mover, this mornings Wage Price Index (WPI) release will be watched closely by markets who will be interested to gauge the level of wage growth acceleration. The index is expected to rise 0.6% with the analyst largely expecting the annual rate to remain subdued around the 2.1% level. A strong read could prompt speculation that consumer led growth and inflation will pick up pace however a soft print will only affirm expectations the RBA will maintain a neutral policy stance into February 2019.

AUD / NZD

Expected Range: 1.0840 – 1.0940

Against the broader context of USD strength, the Kiwi has floundered, opening this morning around the 0.6860 mark. Down more than 7% for the month against the Greenback, the embattled Kiwi again listed amongst the worst performers with little direction on the domestic calendar to drive excitement.

The New Zealand Dollar initially started the previous day in a holding pattern, trading within a tight range of 0.6893 to 0.6921 and looking to claw back losses on the release of offshore Chinese data. The catalyst however, was found during the American session rather than Asian with the drop and volatility triggered by strong US retail data and rising 10-year treasury yields in the States.

With little on the horizon on the domestic front today, New Zealanders turn to Thursday’s Annual Budget release for further direction over the week.

The Aussie cross unfortunately provided little respite for the New Zealand Dollar, also registering a 3% loss in the space of a month. Across the Tasman, all eyes turn to Australia’s Quarterly Wage Price Index and Unemployment Rate for direction on the cross rate.

With little on the horizon on the domestic front today, New Zealanders turn to Thursday’s Annual Budget release for further direction over the week.

GBP / AUD

Expected Range: 1.8010 – 1.8180

The Great British Pound is weaker this morning when valued against the US Dollar as UK employment data failed to impress. The Pound Sterling touched a 24-hour low of 1.3451 surpassing its January's low. On the local data front yesterday UK employment rate remained steady as expected at 4.2% in the three months to March and remains at a 43 year low. However the number of people claiming for unemployment benefits, rose sharply in April, up 31.2K against market's expectations of 7.8K.

Looking ahead today and there are no macroeconomic data releases scheduled. Cable is now trading above the 1.3500 handle currently at 1.3506, down 0.33% on Tuesday. We continue to expect support to hold on moves approaching 1.3450 while now any upward push will likely meet resistance around 1.3590.

AUD / USD

Expected Range: 0.7430 – 0.7540

Yesterday, US yields spiked to levels not seen since 2011. It all started in the Asian session, when the 10 yr US Treasury yield broke above 3%, apparently on stop losses, and the USD started gaining momentum.

More fuel was added to the fire as US retails sales met expectations (except for the measure excluding Auto & gas) but most importantly, upside revisions were made to prior month reading. The 10 yr Treasury ended the session 7 pips higher and the USD closed more than 0.7% stronger, although it lost a bit momentum towards the end of the session.

Tonight we will get Industrial Production for April, with the market expecting a 0.6% month-over-month increase.

AUD / EUR

Expected Range: 0.6280 – 0.6360

Not a great session for the Euro, it reached a new low for the year at 1.1823, only 3 pips below last low but lower nonetheless. The spike in US yields and the USD put a lot of pressure on the EURUSD, which lost 0.8% and is now opening almost flat at 1.1825, but the economic data releases didn’t help at all.

GDP for the Eurozone came flat, but GDP for Germany came weaker than expected, Industrial Production also disappointed. It now seems like 1.1950 will be acting as resistance, on the downside if the 1.1820 support level is broken we might test next support close to 1.1750.

Keep an eye on tonight’s Eurozone CPI data.

AUD / CAD

Expected Range: 0.9570 – 0.9650

The loonie lost around 0.6% versus the US Dollar on yesterday’s session. The broad US strength plus the lack of positive news from NAFTA negotiations weighted on the CAD.

The USDCAD started the session trading around 1.28 and the USD managed to spike all the way to 1.2920, which acted as good resistance, after Canada Home Sales data came much weaker than expected (-2.9% versus 0.4% expected). The CAD was able to recover some ground against the USD towards the end of the session and is now opening almost flat around 1.2875.