Posted by OFX
United States Dollar
The United States Dollar consolidated its position for much of Tuesday as the quiet economic calendar left investors to ponder the recent US-Mexico trade deal. With the US Dollar Index (DXY) opening this morning at 94.72, the general tone of the USD remains consistent with the start of the week.
The US-Mexico Trade deal continues to dominate market sentiment in the absence of any new headlines or data. The positive news saw investors shift gears and support a ‘risk-on’ mood in global markets. While the currency movements have been modest, the market nevertheless, continued favoring USD counterparts as it awaits further news from the US-China trade front.
Market Participant attention no turns to Preliminary GDP Quarter on Quarter numbers and the Crude Oil Inventories for direction, while keeping a close eye on the headlines. US GDP Q2 expected at 4% posts a 4.2% growth rate.
USD / CAD Expected Range: 1.2890 – 1.2987
The Canadian Dollar rallied through trade on Tuesday, buoyed by news the US and Mexico had reached a bilateral trade agreement bolstering hopes the three-way trade pact, NAFTA, can be reformed. The Loonie pushed through 0.7750 after President Trump and Pena Nieto announced a preliminary agreement that solved many of the open issues and opens the door engaging Canada on broader NAFTA discussions.
The Tri-lateral trade agreement has long been a key driver of CAD fortunes and while we are still some way off a reformed accord this week’s progress goes a long way in easing fears talks will break down completely. Loonie direction will remain tied to ongoing trade discussions and with significant challenges still to be resolved there is still a strong possibility an agreement will not be reached before year end.
Attention today turn to the Current Account balance ahead of tomorrow’s all-important monthly GDP print. Canadian current account balance prints -15.88B, while expectations were for -19.5B inline with previous monthly numbers. The loonie had a slight uptick against its trading peers.
EUR / USD Expected Range: 1.1653-1.1700
The euro at the moment is trading on the back of strong fundamentals and Italian uncertainty. While it has bounced back against the USD over the last few weeks due to USD weakness and a little support from German data, there is a sense of déjà vu for the Eurozone with regards to the latest news of political risk. The Eurozone seems unable to escape these sort of events, and once again the threat has come from Italy. Following on from the elections earlier in the year, which ironically passed by without a lot of reaction or concern from the market, the current Italian coalition is causing headaches for the market with the expectation that its first budget could blow through the EU’s rules limiting public deficits to 3% of GDP. So far, the selloff has only been in Italian debt and not the euro itself with Italian ten-year yields hitting four-year highs.
The next point of resistance is the July 31st highs of 1.1750 and support is sitting at 1.1660.
GBP / USD Expected Range: 1.2845-1.2901
The GBP/USD wobbled in early London trade as it rallied to touch 1.2934 before fizzling out and leading cable lower on the day at 1.2845. A newspaper report indicating that BoE governor Carney has been asked by the government to stay on an extra year to provide stability in the year after UK treasury denied Brexit.
Robust second-tier data out of the US ensured the London session highs were short-lived as the greenback strengthened against all majors. Although the data was second-tier, it reinforced the narrative that healthy growth is continuing in the US economy while price pressures also appear to be easing.
Brexit noise continues to plague the GBP with downside GBP/USD supports below the daily low of 1.2860 and 1.2835 with topside resistance in the 1.2895 and 1.2930 areas.
AUD / USD Expected Range: 0.7291-0.7346
The Australian Dollar is steady this morning when valued against the US Dollar in what was a quiet night on currency markets. The Aussie reached a high of 0.7348 in the Asian session on the back of broad greenback weakness.
On the data front today, we had the release of Housing Industry Association (HIA) New Home Sales data for July sale rose 2.2%. Tomorrow the Australian Bureau of Statistics will release private sector capex data for the June quarter which is expected to rise 0.9%, leaving annual growth at 3.5%. On Thursday there’s also data on July building approvals.
From a technical perspective, the AUD/USD pair is currently trading at 0.7295. We continue to expect support to hold at these levels at the 0.7300 handle, while now any upward push will likely meet resistance around 0.7360.
New Zealand Dollar
NZD / USD Expected Range: 0.6690-0.6719
he New Zealand dollars advance continued through trade on Tuesday extending beyond 0.67 as investors took advantage of broader US dollar weakness. Having flirted with moves above the 0.67 handle since Friday, the NZD pushed through to intraday highs at 0.6719 on renewed demand for risk appetite.
The Kiwi was buoyed by news the US and Mexico had reached an accord that would overhaul and replace the existing NAFTA agreement. While merely a bilateral agreement at this point it goes a long way to easing trade-related concerns and has prompted investors to unwind safe haven plays, bolstering demand for the New Zealand dollar.
Despite the renewed surge in risk appetite and break beyond resistance we still expect ongoing upside pressure on extended NZD rallies. A push toward 0.68 in the current environment will likely prompt profit taking as the gap between central bank interest rates and the outlook for monetary policy continues to weigh on the Kiwi. Attentions this week remain with Thursday Business Confidence print with interim direction driven by risk appetite flows.
Posted by OFX