Kiwi steady in face of trade tensions

Key Movers

The Australian dollar opens marginally lower having maintained a tight trading range through much of Tuesday. Market movements were modest as investors eye commentary from Fed Chair Jerome Powell and trade talks between President Trump and Premier Xi as key markers for direction through the short term.


Having bounced between 0.7203 and 0.7246 the AUD appears poised for a break outside recent short-term ranges as investors begin placing bets on a truce between the US and China. Trade remains the single most influential driver governing broader AUD direction and any indication of a détente between the warring economic powers could embolden investors to drive the AUD back above resistance at 0.7330. That said, failure to reach an accord guarantee’s tariffs will increase from 10% to 25% in January, a move that will likely increase AUD volatility and open the door for a correction back toward 0.70.


With little of note on the domestic docket today attentions turn to quarterly US GDP data and commentary from Fed President Jerome Powell as key drivers through Wednesday.


The Great British Pound has tumbled overnight to a monthly low as pressure is expected to persist into December 12th when UK parliament votes to pass through recent Brexit agreements. With the UK House of commons set to vote, UK Prime Minister Theresa May has exactly two weeks to convince the majority of parliamentary members to pass the Brexit deal.



While cable was steady during the Asian session, the same could not be said heading into the morning of UK trade as the GBP/USD pair was sold heavily from 1.2810 to 1.2740 within the first two hours of trading.



Being one of the worst performers for the day, Sterling was 0.75% lower as United States President Donald Trump did no favours suggesting a Brexit deal might hinder future trade deals between Britain and the United States.

As political instability is expected to heighten volatility for the next couple of weeks, markets turn to this evenings Bank Stress Test Results and the release of Bank of England’s Financial Stability Report.

The Great British Pound opens this morning at 1.2733.


The US Dollar Index edged higher on Tuesday touching a high of 97.50, the index which measures the greenbacks strength against six major currency pairs has moved close to 1% in the past two days and has shrugged of comments from Fed member Clarida on interest rate talk.



The Federal Reserve’s second-in-command has backed interest rates hikes but stressed that monetary policy is not a pre-set course. He mentioned that interest rates were closer to neutral but there is no agreement at the FOMC about ‘how close’ to neutral they are. He said hikes should be dependent, noting that it was important to see capex rebound after a soft result in Q3. In a separate speech Atlanta Fed President Raphael Bostic said the central bank "is not too far" from a neutral interest rate and “neutral is where we want to be”. The Fed has raised rates three times this year and is expected to increase again in December. While the market has priced in each of those hikes, there remains a disparity between traders and the Fed over what is ahead.

US equities finished the session higher, the Dow Jones Industrial Average added 108.49 points, or 0.44%, to 24,748.73, the S&P 500 rose 8.67 points, or 0.32%, to 2,682.12 and the Nasdaq Composite gained 0.85 points, or 0.01%, to 7,082.70.



On the commodity front, Gold has dropped suffering the worst decline in 2-weeks. The yellow metal touched a low of $1,211.80 which was triggered by a stronger greenback. Oil held its ground overnight, with the WTI oil price slipping US$0.20 to US$51.50 per barrel.

Looking ahead, a plethora of data out; Federal Reserve Chairman Powell will be delivering a speech at the economic club of New York. We also have Preliminary GDP, Goods Trade Balance, Wholesale Inventories, New Home Sales and Richmond Manufacturing Index.


In the absence of local economic data the Euro has once again turned towards Italy’s ongoing budget saga. Earlier reports circulating saw the EUR/USD edge higher that Italy was set to cut its planned deficit target for next year however, another report later came out that Italy’s deputy Prime Minister Matteo Salvivi indicated Italy will not submit a revised budget to the EU. This saw the EUR/USD pair touch a low of 1.1277



Looking ahead, we have M3 Money supply, Private Loans and German GfK Consumer Confidence all due to be released.

On the technical front, support is sitting at 1.1260 ahead of 1.1215. On the upside, resistance can be found at 1.1360 and 1.1430.


The Canadian dollar fell through trade on Tuesday consolidating a break below 0.7550 and touching intraday lows at 0.7506. Investors looked to safe haven assets, selling commodity linked currencies as trade tensions continue to weigh on market demand for risk and govern broader direction. Comments from Trump in the Wall street Journal suggest the US will forge ahead with increasing tariffs on 200bn of Chinese imports from 10% to 25% in January regardless of a resolution in recent trade hostilities at this weekends G20 summit.


Despite a bounce in oil prices the CAD continues to test new year to date lows and remains vulnerable to broader risk trends and trade headlines. Attentions remain squarely affixed to US China Trade Talks this week, wherein a temporary détente could foster short term support for the CAD.