Australia:
Australian August jobs data out yesterday was ahead of expectations showing a leap of 54,200. That’s the largest jump for 2 years and substantially higher than the 15-20,000 increase forecasted. This was the 11th straight month of gains, the longest streak in 23 years. Also of note was that the bulk of gains 40,100 were made up of full-time jobs with part-time jobs up by 14,100. The AUD/USD reversed an earlier dip to the 0.7970 level, spiking higher over the psychological 0.80 mark to 0.8015 the session high, breaking 3 days of losses after the jobs data release. However the AUD failed to hold onto its gains overnight as the release of the US CPI data was higher than expected, this saw the AUD reverse its AU jobs data gains, falling from 0.8010 to 0.7956 before retracing in New York to 0.7995. It is currently at 0.7997 with immediate resistance at 0.8025 which if broken would target 0.8050-55. On the downside (currently more favoured) support is back at 0.7970 then at 0.7940 region. Look for the 0.7970-0.8010 range to hold ahead of the US retail sales data later tonight. Any heightened tensions over the just launched North Korean missile will pressure downside.
New Zealand:
New Zealand dollar trading continues to be choppy as the upcoming election has seen polls whipsawing this week over which party is ahead. Early in the week the NZD/USD was up at 0.7319 after a poll result showed National with a 10 point lead; it is now back at 0.7225 after a poll last night showed Labour ahead by 4 points. The election is just “too close to call” at the moment. Price action overnight was also affected by the better US CPI figures which saw the NZD/USD drop from 0.7250 to 0.7184, but then retracing back to 0.7210.Currently the NZD is trading around 0.7225 and given that Korean tensions are back to fore given another missile launch, hard to see much upside today especially ahead of the US retail sales data later tonight. Immediate strong support remains near the 0.7210-0.7200 region, below which the pair is likely to accelerate the fall towards the crucial support level near 0.7140-35 zone. On the upside momentum above 0.7285 may threatened the 0.7320/30 region, but this would require more good news in the polls for National…so perhaps next week’s story.
United States:
The US dollar has enjoyed some solid gains this week led by renewed optimism over the US President Donald Trump’s pro-growth economic policies. The news that a new US tax plan outline would be announced by the end of this month overshadowed disappointing US data, showing producer price inflation increased less than expected in August, and provided an additional boost to the greenback’s ongoing recovery move. However last night’s CPI data showed a rise 0.4%, higher than expected, and lifted the year-over-year rate to 1.9%. The core rate increased by 0.2%. This result snapped a string of five core CPI reports below median expectations and provides the important takeaway that the risk of a December Fed hike is gradually increasing, with market odds now at 45% for a December hike, over double the 22% odds this time last week. Although China data this week softened, the signals emanating from financial markets remain decidedly bullish. Bitcoin slumped after one of China’s largest online exchanges said it would stop handling trades by the end of the month amid a government crackdown on cryptocurrencies. Late this morning the Japanese Yen turned higher and South Korean stocks retreated after North Korea launched another missile over Japan on Friday morning in a retort to strengthened UN sanctions against Kim Jong Un’s regime. Markets are now showing signs of becoming conditioned to actions from North Korea, which has launched more than a dozen missiles this year and tested a nuclear device. Initial reactions have become short lived. Global equities climbed to a record high this week as earnings and faith in economic growth overshadow the escalation of tensions on the Korean Peninsula. Next week will bring the US Fed meeting, no rate hike is expected but as always the focus will be on the statement and any references to timing of future rate hikes. Currently the EUR/USD is trading around 1.1904 and we expect trading to remain around this level ahead of retail sales data later tonight. Immediate resistance is at 1.1930 with downside at 1.1860. This range should hold barring surprises in tonight’s data, out into the start of next week.
United Kingdom:
The big mover of last night has been the GBP which surged to a new yearly high of 1.3405 after strong local data supported a move towards monetary tightening. UK CPI was up 2.9% with house prices climbing 5.1% easing tensions surrounding Brexit. Earlier in the day, the Bank of England decided to leave the rates unchanged with a 7-2 vote. The BoE minutes noted that “some withdrawal of monetary stimulus was likely to be appropriate over the coming months in order to return inflation sustainably to target”. Although there was no press conference today, the BoE Governor Mark Carney commented on their decision in an interview, saying that in order to return inflation to the 2% target rate in a sustainable manner, they may need to do some adjustments in interest rates in coming months. Importantly, Carney stated that he was one of the ones on the MPC that had changed views. The BoE now looks to have made it reasonably clear that it could be joining the Fed and Band of Canada in withdrawing policy stimulus shortly as inflation starts to supplant Brexit on its list of worries. The GBP is also gathering strength against the EUR, suggesting that the cable’s upsurge is a product of the GBP strength rather than a USD weakness. The GBP is now at 1.3390 and after the big rally looks a little overbought…immediate support is back around 1.3325/30, with resistance at 1.3405 then 1.3430/40.
Europe:
The Euro took the back seat last night to US and GBP moves. There were comments from an ECB Board member official that although the decision to taper the QE programme has been postponed for the time being, although it is inevitable. He also added that the current strong level of the exchange rate is a reflection of strong growth in the region, while he added that further evidence is still needed before any decision on stimulus. Look for consolidation in the 1.1860-1.1930 range heading into next week.
Japan:
With this morning’s North Korean missile launch the Japanese Yen has reduced its safe haven status with the USD/JPY initially falling from 110.22 at the open to 109.45, it is currently now back over the 110.00 level at 110.17. The latest missile, which was launched at 6:57 a.m. and flew over the northern island of Hokkaido before landing in the Pacific Ocean, comes after the UN Security Council on Monday approved harsher sanctions against North Korea as punishment for a nuclear bomb earlier this month. The fact that the USD/JPY retraced losses quickly after the missile scare tends to suggest the USD bullish tone remains. Immediate support is now at 109.70 then 109.35. Upside resistance is at 111.05 then 110.50. Trading within the 109.70-110.50 range should hold to next week’s open.
Canada:
The USD/CAD pair spiked to a fresh weekly high at 1.2240 as the first reaction to the higher-than-expected consumer inflation growth in the U.S. but quickly erased its gains to return to the 1.22 handle. Currently, the pair is trading at 1.2185 up 0.2% on the day. The USD/CAD tone remains bearish overall, and we continue to view the 1.22 area as offering resistance and feel that USD weakness below the current consolidation base of 1.2110 will trigger renewed downside pressure on the USD. The 1.2160-1.2210 range should hold leading into next week.