AUD consolidates at 0.7350 ahead of RBA meeting

Key Movers

The New Zealand dollar crept higher through trade on Monday, extending moves beyond 0.69 to touch intraday highs at 0.6940. The NZD outperformed to start the week, buoyed by an uptick in risk sentiment following the largely positive Trump/Xi meeting at the weekend. Investors seized on reports the US and China had agreed a temporary cessation of trade hostilities driving commodity units higher and prompting markets to test recent ranges.


The NZD has enjoyed strong gains throughout the last 4 weeks advancing five and a half percent in November. While the recent risk appetite improvement has added to upside momentum we expect further gains may be hard won. Fair value estimates through the medium term suggest a correction back toward 0.67 may be warranted.


Through the short term we expect risk appetite to continue to prop up the NZD while moves approaching 0.6940/0.6950 may meet selling pressures.


The Great British Pound tested another fresh low on Monday of 1.2698 against the worlds reserve currency with continued negativity around Brexit. Despite the Cable briefly touching 1.2824 on the back of broad-based USD weakness, it failed to extend its rally late in the European session and pretty much wiped all of it’s previous gains. Sellers have contained to push the GBP/USD towards the 1.2700 support level and if this continues to happen the big questions is how long can it go?



Looking ahead, we have the Bank of England Governor Mark Carney, along with other policymakers testify about the Brexit Withdrawal Agreement before the Treasury Select Committee, in London. Britain’s parliament will begin five days of debate on Prime Minister Theresa May’s Brexit plan, ahead of a critical vote on Dec. 11. Also, the UK is to release data on construction sector activity.


Markets have felt the full effect of an agreement over the weekend between President Donald Trump and Chinese President Xi Jinping as equities in Asia and offshore received a boost. As a truce for 90 days was called in the current trade war, investors flowed back into risk-based assets, as traditional safe haven assets including the US Dollar was sold off.

The US Dollar Currency Index (DXY) momentum looks to have peaked last week at highs of 97.50, pulling back from announcements over the weekend. Following the G-20 summit, the DXY has slumped a further 0.15% overnight to remain under pressure, just below the 97 handle.



Manufacturing PMI was released by the Institute of Supply Management overnight, showing a positive reading for the manufacturing sector, growing for the 115th consecutive month in November. The reading of 59.3% was a strong print for the US economy as new orders picked up 4.7% as demand remains strong due to higher consumption strength.



Several FOMC members spoke overnight including Federal Reserve Governor Richard Clarida who on Bloomberg TV & Radio concurred with Chairman Jerome Powell that interest rates are ‘much closer’ to neutral and the central bank should take a ‘gradual’ approach to rate hikes. According to the CME Fedwatch tool, target rate probabilities for the 19th December Fed meeting is a 85.7% chance of a further interest rate hike, up from 79.2% last week.


On Monday we saw a U.S. dollar dip on the back of continued news about a trade war truce on tariffs between the United States and China. The Euro hit a daily high of 1.1379 against the Greenback before losing momentum, and settling down around 1.1350. Locally yesterday Markit Manufacturing PMI for November print was 51.8, up from the initial estimate of 51.6 but down from 52.0 in October, its lowest level since August 2016.



Looking ahead today and the macroeconomic calendar will be light with the only scheduled release of Producer Price Index (PPI) for the month of October.



From a technical perspective, the EUR/USD pair is currently trading at 1.1353. We continue to expect support to hold on moves approaching 1.1315 while now any upward push will likely meet resistance around 1.1375.


The Canadian Dollar improved over the day, jumping to a 1-week high of 0.7595 in Monday’s trading session. While not enough to break through the resistance ceiling of 0.76, it does provide an optimistic tone for the Loonie going forward. The cause of the improvement comes off the meeting between President Trump and President Xi Jinping during the G-20 summit. After threatening to raise tariffs on Chinese products, there was an agreement to a short reprieve where both sides will continue to talk for another 90 days.



Talks from Bank of Canada early Thursday morning are expected to have a high impact on the dollar. The rate statement announcement is the primary tool the bank uses to communicate with investor regarding monetary policy. It will discuss the economic outlook and will offer clues on the outcome of future decisions.



The CAD/USD opened at 0.7571 this morning.