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Australian dollar trading has been choppy over the last 24 hours ranging from 0.7871 to 0.7950, initially influenced by better-than-expected Chinese manufacturing PMI and Australian private capex figures. This uptick, however, turned out to be short-lived with a drop to 0.7871 a major support level. The AUD then bounced off this level helped by weak US housing and inflation data and resurgent oil and gold prices. The risk-off tone remains and we see any gains capped at 0.7965 over the day. Tonight’s US jobs data provides major event risk. A break above this level opening doors for an advance up to 0.8000 and beyond, should US employment data disappoint.

New Zealand
The New Zealand dollar was knocked lower yesterday afternoon by disappointing business confidence numbers dropping below crucial support at 0.7180 against the USD. It then slid down to a 3 month low at 0.7132 as the risk of a change in government became more likely on a poll released last night showing that the opposition Labour party had made huge gains and was marginally ahead (for the first time in 1 years) of the National government. A pullback in the USD has seen the NZD recover some ground and it opens around 0.7175 this morning. Just released the terms of trade – the ratio of export prices to import prices – rose 1.5% in the June quarter, a little less than the market expected. Also, the March quarter increase was marked down from 5.1% to 3.9%, due to a revision to the price/volume split for forestry exports. As a result, the terms of trade fell slightly short of the record high that was anticipated. We look for the NZD to regain the 0.7180 level, but advances will be limited ahead of tonight’s US Non-farm payroll data and the more uncertain NZ political climate leading into the general election on 23rd of this month…0.7200 should cap advances, with downside at 0.7132 on the day.

United States
Positive economic news over the last few days for the both GDP and ADP employment data has seen the US dollar rally. On Wednesday the second estimate of US GDP data suggest momentum through Q2 was much firmer than expected at 3% annualised (expected 2.7%), driven almost entirely by domestic demand, with both consumption and investment revised higher. Even the net export picture remained positive, despite downward revisions – exports were up 3.7% (initial: 4.1%) with imports up 1.6% (initial: 2.1%). Also heartening was ADP private sector job gains exceeding expectations coming in at a healthy + 237k in August (vs 185k expected), posing upside risks to tonight’s broader non-farm payrolls report, (initial expectations were around 185K but 200K+ now looks possible) the Fed will have liked this data. Overnight there was some news on the long anticipated Trump tax plan with comments from US Treasury Secretary Steven Mnuchin, who was interviewed on CNBC and spoke optimistically of the Trump tax plan and again called for the corporate tax rate to be lowered to 15%. On the whole, there was not a whole lot of new information for the market to disgust, but comments that having a “weaker USD is somewhat better for trade” saw the USD/EUR weaken to 1.1920, although Mnuchin is of the belief that “a strong USD over the long term reflects confidence.” Markets are likely to wait for more tax detail before taking a view.

United Kingdom
The third round of Brexit talks started badly this week, with negotiators on both sides barely able to conceal their frustration. This is ahead of the outcome of the October European Council, where EU leaders will decide in October whether “sufficient progress” has been made for trade negotiations to start. Brexit negotiations are not going at the pace expected and EC President Juncker has voiced his dissatisfaction with Britain for failing to prepare for Brexit talks. The U.K.’s bill is a major spanner in the works for the progress of these negotiations. While the U.K. has accepted it will pay something, Brexit Secretary David Davis appears determined not to tell the EU what it accepts it’s on the hook for. The GBP/USD is currently at 1.2945 after establishing a fresh weekly low overnight at 1.2852. This pair keeps posting lower lows on a daily basis, which favours a new leg lower later tonight, where the upcoming US employment report may see a fall in the pair to1.2773.

German CPI data surprised mildly to the upside (0.2% m/m, 1.9% y/y), for a third consecutive month of decent increases. With activity data firming and inflation looking slightly better the risk remains the ECB rhetoric gets more hawkish rather than dovish. However, the Eurozone’s preliminary figures for both headline and core inflation also came out higher than expected in August, but it would be a stretch to see a strong upward trend as inflation might even fall back again at the start of 2018. Other positive news showed that after June’s drop, the Eurozone unemployment rate stabilised at 9.1% in July. But given the current taper debate it is no surprise that markets rather focused on the preliminary inflation figures for August. Headline inflation actually rose to 1.5% in August, from 1.3% in July. This was slightly above the consensus estimate (1.4%), while core inflation remained stable at 1.3% (consensus at 1.2%). Look for continued EUR strength with the EUR/USD climbing above the 1.2000 level providing tonight’s US jobs data is not too bullish.

Later today Japan will release its Nikkei manufacturing PMI, expected unchanged at 52.8 and August consumer confidence, forecasted at 43.5 from previous 43.8. Yesterday saw Japan’s industrial production July figures, which came below expected and previous in July, up for the year by 4.7%, but down for the month by 0.8%, doubling expectations of a 0.4% decline. The USD/JPY is now at 110.03 after 110.65 high overnight, the short trend is positive with immediate resistance around 110.25. An upward extension above this should favour a retest of the mentioned 110.65 high, but it will take a break above the August 16th 110.94 high, to confirm a steeper recovery in the days to come. More extreme North Korean flare-ups would negate this view.

Canada’s current account deficit (on a seasonally adjusted basis) widened by $3.4 billion in the second quarter to $16.3 billion, as the deficit on international trade in goods expanded. However there was good news, GDP data showed Canada’s economy unexpectedly accelerated in Q2 to 4.5 % annualized pace, amid the biggest binge in household spending since the last recession. Economists had anticipated a 3.7% rise in GDP. This surge in growth should help cement the chances the Bank of Canada will continue raising interest rates in coming months as the nation’s economy nears full capacity. Conversely the Canadian dollar jumped nearly 90 pips against the USD with the USD/CAD now down at 1.2452, 324 pips lower than the August high of 1.2768.

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