Strong Dairy Price Auction insulates Kiwi from drop in risk appetite

Key Movers

The Australian dollar suffered overnight as optimism surrounding the US-China G20 agreement faded. The Aussie initially looked like testing the elusive 0.74 handle in Asian trading, touching its highest level since august at 0.7394 before deteriorations in risk sentiment forced the domestic unit lower in line with global equity markets. This was partly due to tweets by US president Trump reaffirming his preference for trade tariffs and ultimately casting further doubt on the US-China trade truce. This saw the Aussie fall to levels nearer to 0.7330 with the AUD/NZD cross also retreating 30 points to 1.0590 as New Zealand dairy auctions met expectations.



Recapping yesterday’s domestic data releases, Q3 current accounts numbers showed a deficit of -10.7bn versus an expectation of -10.2bn while net exports numbers saw exports contribute 0.4% to Q3 GDP, beating market expectations of 0.3%. We also saw the Reserve Bank of Australia maintain their current monetary policy stance at their December monetary policy meeting, opting to keep the official cash rate on hold at 1.5% for the remainder of the year.


The key risk event for the day ahead is the Q3 GDP read due out of the domestic economy. With the report due out at 11:30 EST, markets are expecting a quarterly increase of 0.6% with an annual rate of growth of 3.3%.



Moving into the Wednesday session, topside resistance is clearly evident on moves approaching 0.74 with first resistance evident at 0.7394 on the AUD/USD. First levels of downside support can be seen at 0.7318 before the 0.7300 handle. A break below these levels could see the Aussie test 0.7240.


The Great British Pound remained above the 1.27 handle vs the Greenback throughout the Asian session before the US Dollar took a hit on the back of President Donald Trump tweeting about how much he loves tariffs. The tweets dampened sentiment as he said his team was waiting to see if a deal with China could actually be done and saw the pair move up to 1.2834. All gains were quickly lost and much more after Prime Minister May was found in contempt of Parliament for refusing to release its full legal advise on the Brexit deal. The news sparked a heavy sell-off and saw the Cable touch a one and a half year low of 1.2658.



On the data front, UK construction PMI unexpectedly rose to 53.4 in November to a 4-month high, up from 53.2 in October. The data revealed that the UK construction sector remains in expansion mode, with resilient business activity trends seen for housing, commercial and civil engineering activity




Looking ahead the UK is to release data on service sector activity and the UK’s Financial Policy Committee due to release its Meeting Minutes.


The Greenback strengthened overnight as a risk on-rally subsided following a reversal from this weeks gains fueled by Trump-Xi trade agreements on the weekend. Investors shied away from equities as the S&P 500 plummeted 3.25% and continuing its bear trend below its 200-day moving average.



The Dollar Index continued its downside movement into the European session, seeing lows of 96.40 overnight before bias back into the Greenback as the risk rally evaporated for the DXY. It was not strong enough to break the wall of resistance at the 97.00 handle met on multiple times this week.
Federal Reserve New York President John Williams noted overnight that it will be ‘at some point in time’ less obvious that the Fed needs to raise rates and will be appropriate to further step back forward guidance, however the Fed’s dot plot will continue.




The DXY finished even in North America overnight at 96.97 as market participants look towards the annual release of the beige book. It is still due to be released on schedule despite US markets being closed on Wednesday in a national day of mourning for the late George H.W. Bush


The Euro is stronger this morning when valued against the Greenback as the pair traded as high as 1.1418 on Tuesday, although once again, it was unable to hold on to gains above the 1.1400 mark. On the release front overnight Producer Price Index (PPI) for the month of October rose by 0.8% when compared to the previous month and by 4.9% from a year earlier.



Looking ahead today on the calendar we will see the release of the final November Markit Services and Composite indexes for both economies and EU October Retail Sales.



From a technical perspective, the EUR/USD pair is currently trading at 1.1340. We continue to expect support to hold on moves approaching 1.1315 while now any upward push will likely meet resistance around 1.1360.


The Canadian dollar edged higher during Tuesday’s trading session to peak at a week high of 0.7596, dropping throughout the morning to open at 0.7548. This comes after emerging doubts of what was agreed upon during the meeting between the US and Chinese Presidents, with either party being unable to confirm details. This resulted in a downfall in Asia and European stocks, and may be an indicator of where the CAD will be headed.



It is expected that the Bank of Canada should leave their monetary policy unchanged during their announcement tomorrow morning. This is due to a very low chance of market pricing, given the fall of oil prices affecting the Loonie. The bank is expected to maintain the benchmark interest rate of 1.75%.