Australia
In a week of little domestic data releases, the Australian dollar has been driven by offshore moves and has drifted lower after breaking below the 0.7950 support level on Tuesday, currently sitting around 0.7900 against the US unit. Of interest is that Moody’s reiterated Australia’s AAA rating with “Australia’s very high [fiscal strength] score is driven by a moderate government debt burden relative to AAA-rated peers and low cost of debt.” The dearth of economic news has left the AUD very much swinging on the waxing and waning at the mercy of the risk-off mood over the week, but the general tone is down and it looks to be back grimly hanging on to the 0.7900 mark after a run down to the 0.7865 level overnight.
Upside today looks limited to the 0.7915/20 level with immediate support at 0.7865, however solid levels in metal prices are Australian dollar supportive which should this prevent any larger depreciation in the AUD. We look for consolidation at current levels while traders await the outcome of the speeches from Yellen and Draghi tonight from the Jackson Hole Central bankers Symposium.
New Zealand
Not a good week for the New Zealand dollar, as a failure to regain the 0.7300 level early in the week has seen a conclusive break of support at the 0.7250 mark, after the fiscal update by Treasury was not as upbeat as expected. With only 29 days until the NZ election, political uncertainty is beginning to be a factor in New Zealand dollar values. A change in Government would not initially bring many big policy changes but given that Labour governments tend to be spending orientated any uptick in inflation may cause the RBNZ to change its interest rate forecasts bringing forward possible rate increases, but in reality this would be a mid-2018 issue. The NZD bounced from overnight lows around 0.7190 and has opened steady at the 0.7200 level but tonight’s Jackson Hole speeches should set short term direction. Over the day we are unlikely to see the NZD above 0.7220, with downside at 0.7190, but if this breaks look for a move back to the 0.7150 region.
United States
Volumes were lower overnight with US equity markets drifting lower ahead of tonight’s Jackson Hole central bank speeches and increased political posturing of the US debt ceiling. US existing home sales for July were 1.3% lower, but with little other data markets focused on upcoming events that have potential to be market-moving over the next few days. Tonight’s speeches by the heads of the ECB and US Fed may give some clues on the timing of stimulus reduction and rate hikes. President Trump again used his Twitter feed to comment on legislation to keep the US government open and able to pay its bills next month, this has potential to have major repercussions to markets. The USD has remained steady against most of its major trading partners, rising marginally against both the JPY and EUR. We believe it unlikely that either ECB head Draghi or Fed Chair Yellen will give much away tonight and that of more import will be next Friday’s Non-farm payroll data for August which should give a clearer pointer to the track of Fed rate expectations. Expect consolidation of the USD/EUR over the day around current levels 1.1795, a break over 1.1860 is required to establish upward trajectory, with 1.1680/90 being the support to break for further downside.
United Kingdom
Data out yesterday showed that Q2 GDP growth was up by 0.3% pretty much in line with expectations and slightly ahead of the previous quarter. However household spending is slowing, up only 0.1%, the weakest performance since late 2014, leaving the services sector to underpin growth. In comparison to a year ago household consumption remains up by 2.8% but that spurt now appears to be grinding to a halt as rising prices allied with flat earnings growth chip away at household spending power with the weaker currency continuing to bolster export demand. However the economy is still at fairly anaemic growth levels and will have to show a marked improvement in Q3 and Q4, if it is to attain the 1.7% growth projection by the International Monetary Fund. Against the USD the UK pound is pretty much unchanged around 1.2800, The GBP/USD has run into selling resistance at 1.2830/35 with 1.2770 providing downside support. The tone remains GBP bearish and we favour a move to the 1.2700/25 level into next week. UK markets will be closed on Monday for a Bank holiday.
Europe
No data on the Eurozone saw the EUR trade sideways overnight, now around 1.1800 has barely moved over the morning as markets wait tonight’s Central bank talk-feast. The ECB minutes released earlier this month show that policymakers are not comfortable with the sharp appreciation in the EUR. Thus, it is unlikely that Draghi would say anything that could would lift the EUR. If anything, the risks are more skewed to the downside as market optimism that he could hint towards QE tapering plans may prove unfounded.
Japan
Better news for the Bank of Japan, as CPI data released yesterday showed that it is closer to gradually reaching it 2% inflation target. Tokyo core consumer prices rose 0.5% in July, while, nationwide core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, came in line with estimates and followed a 0.4% gain in June.
The JPY has been trading sideways over the last few days as the more risk-off tone has seen USD/JPY falls blunted at the 108.80 levels. It is now at 109.63 the tone looks bearish and we expect further falls to test back at 108.80 a break of which would target 108.45 then 108.10 we look for this lower level next week.
Canada
The Canadian dollar has ended the week on a stronger note helped by a weaker USD and a rally in oil prices which provided an additional boost to the commodity-linked currency. Now at 1.2515 we are starting to approach 3 week lows in the 1.2430/40 region. Given current US ructions the CAD is favoured against the US and if the Yellen speech tonight provides no upside look for the USD/CAD to test downside support. Resistance is at 1.2565 is unlikely to be reached this week.