Australian data this week has been a little mixed but the Australian dollar has now managed to hold over the 0.8000 level against the USD. On Tuesday the RBA keep interest rates on hold at 1.5% as widely expected but the accompanying statement was more hawkish than many expected and overnight price action saw the AUD break above 0.800 to an 0.8026 high. The AUD then dipped back below the 0.8000 level to a low of 0.7973 on weaker than expected retail sales data and a smaller than forecasted trade surplus. However overnight the USD has suffered on weaker data which has seen the AUD jump back over 0.8000 to currently trade around 0.8085, its highest level since the end of July. The AUD also continues to be helped by firmer metal prices especially the gold price which continues to rally as the Korean tensions remain to the fore. The RBA Governor is scheduled to speak later tonight and these comments will watched for any hints on timing interest rate moves. Upside at 0.8065 should hold over the day and lead into next …downside is supportive at 0.8000 but unlikely to be tested today.
The New Zealand dollar has had a choppy week with a range of 0.7148 – 0.7262 vs the USD. Economic data has been mostly positive but the NZD is now in the grip of offshore drivers around Korean risk sentiment and locally the election that is now only two weeks away and looks too close to call. The Global Dairy result was not as positive as expected but in the end had relatively little effect on the currency. Currently the NZD is sitting around the 0.7238 level and should consolidate at these levels to close the week. Upside for the NZD is mainly down to USD weakness and downside is favoured as the election draws closer unsettling kiwi dollar bulls. Look for 0.7180-0.7255 to hold heading into next week.
US equity markets were mostly flat overnight but the USD fell on weaker than expected jobless claims data and comments from the ECB head that he was concerned over the strength of the EUR. U.S. President Donald Trump’s surprise debt-ceiling deal with Democrats temporarily bolstered markets, but traders are alert to a potential escalation of North Korea risks amid concerns Pyongyang may fire another ballistic missile. Trump said that military action against the country wasn’t his first choice as South Korea moved to bolster its missile shield. Adding to the mix of US events was the news that another hurricane, Hurricane Irma was likely to make landfall in Florida with potential for the resultant widespread destruction. This could have more an effect on the USD, as after the grim aftermath of Hurricane Harvey and a sharp increase in jobless claims which are likely to rise further as Harvey shut down most of Houston the chances of a December rate hike are substantially lower. While it is a little soon to rule out a December rate hike, as several Fed officials have warned, the next few weeks of data will be storm influenced and a very swift recovery in economic activity will be needed to prompt the Fed to raise rates. We suspect the Fed Reserve may refrain from any hawkish views until they see a more positive upturn in U.S. data. The EUR/USD has soared to a high of 1.2057 overnight , is now back around 1.2034 and should consolidate at current levels to end the week….support is at 1.1960 with topside at 1.2070.
The UK pound has strengthened overnight against the USD, reaching a 1-month high of 1.3115 early in the US session, helped by the USD sell-off. It did however trim half of its daily gains ahead of the close to settle around the 1.3070 region, it is currently back around the 1.3103 level. The UK will release its manufacturing and industrial production figures for July alongside with the trade balance tonight with a worse than expected result likely to see the GBP slide below the 1.3000 mark. The ongoing Brexit talks continue to take preoccupy UK headlines as British policymakers continue to debate on Theresa May’s key Brexit repeal bill. The opposition is solid and the opinion divergence is a major barrier to the smooth progress of the EU discussions. As long as the GBP/USD holds above crucial support at 1.3020 downside looks limited, immediate resistance is at 1.3140 which is unlikely to be seen over the next 24 hours.
The European Central Bank (ECB) decided to keep the policy and the deposit rate unchanged on Thursday and announced that the ECB was going to continue with the €60 billion asset purchases at least until December. During the press conference, Mario Draghi, President of the ECB, commented that growth in the euro area was robust and broad-based and added that they were likely to announce a decision on the future of the QE program in October. Although Draghi noted that the increasing volatility in the euro exchange rate was concerning, investors continued to price a possible tightening move before the end of the year which saw the EUR surge against the USD. Currently the EUR is holding steady against the USD at 1.2035, after the 1.2057 high overnight. Upside for the EUR is at 1.2070 and support at 1.1960. We expect trading to remain within this range as we head into next week.
The Japanese Yen continued it weekly trend, firming against the USD bolstered by continued North Korean tensions and weaker US data releases. The USD/JPY hit a new yearly low of 108.04 overnight, is now back around 108.35. Japan will release a Q2 GDP revision during this afternoon’s Asian session. This is expected to be unchanged at -0.4%. Given the continuing risk sentiment look for the USD/JPY to test lower, another break below 108.10 should see an extension to the 107.70 then 107.30 region. Resistance up at 108.65 unlikely to see any action today…downside is favoured heading into next week.
The Bank of Canada’s monetary policy decision surprised markets this week raising key interest rates by 25 basis points. Markets were expecting another rate hike from the BoC but only later in the year. The BoC signalled that the decision to hike interest rates was a result of better than expected GDP numbers. However the BoC toned down its forward guidance noting that rate hikes were not on a pre-set course. This saw the CAD up 1.2% on the day against the USD. It continues to push higher against most of its trading partners also underpinned by higher commodity prices. The USDCAD made a 27 month low overnight at 1.2101 after the USD sell-off but currently back at 1.2117 ahead of tonight’s release of the August unemployment rate, which is expected remain steady at 6.3%. Downside in the USD/CAD is the favoured direction, with long term support at 1.2050 now looking possible out over next week, especially if US data weakness persists.