CBA FX Morning Commentary
Thoughts from our Strategy Team
In Europe this morning, EUR/USD popped up to 1.3570 early in the session, although has since eased back a little. GBP/USD is holding under 1.62, comments from BoE Governor Carney adding little new and maintaining the generally positive tone from the BoE. USD/JPY has dipped a little from yesterday’s highs back under 101.50. There is some US economic news to look to today, with Conference Board consumer confidence of interest. The reading dipped in October, but may have been impacted by the partial government shutdown.
AUD/USD lifted modestly today, but has sold off in European trading. The catalyst for the lift was comments by RBA’s deputy governor Phil Lowe during the Q&A of a speech on productivity. During the Q&A, Lowe said Australia’s terms of trade will not fall back down to the levels in the 1990s and this will keep the Australian dollar above average levels. Lowe’s comments are consistent with comments by RBA Governor Stevens last week that Australia’s terms of trade will fall but remain above average levels. However, the AUD rose after Lowe’s comments rather than fall after Stevens’ comments (who also discussed intervention). We see further modest upside to AUD this week after losing 3 US cents last week: vol remains low, global equity markets remain firm (NASDAQ hit 4,000 points for the first time since 2000), base metal prices are lifting and the Australia-US interest rate spreads are supportive.
EUR/USD remains stretched at levels above 1.3500 and is likely to ease further this week. ECB member Hansson reiterated the view that the ECB stands ready to cut borrowing rates further and is ready to take the deposit rate negative. The risk of further ECB policy stimulus has been highlighted in speeches by several ECB Board members for several weeks. The advance estimate of the November CPI (Friday) is likely to be low around 0.8%pa well below the ECB’s 2% target. A low inflation print may raise expectations of further ECB policy stimulus at the 5 December meeting, where the ECB will produce new inflation and growth forecasts.
GBP/USD failed to hold above 1.6200 for the sixth time since early October. The UK mortgage approval data was weaker than expected, but that is hardly a catalyst for a reassessment of theUK economy or the GBP outlook. Rather, we are sticking with our assessment yesterday in our weekly outlook that the positive UK economic backdrop has already priced into GBP at current levels, and some pullback should be expected on data disappointments. Although the data and developments this week should be GBP supportive, we think GBP/USD will continue to meet resistance above 1.6250, as it has done each time it has traded near these levels since late September. BoE Governor Carney has been speaking this morning, but the message is the familiar one maintaining the recent positive tone from the BoE, reflecting the improving prospects for the UK. The data highlight is the second estimate of UK GDP (Wednesday). The release will provide further details on the mix of the solid 0.8% growth in Q3.
USD/CAD has eased from overnight highs above 1.0580, but remains weaker than we have been anticipating. Some of the weakness can be attributed to the drop in oil prices in the wake of the weekend’s Iranian deal, reflecting Canada’s high level of energy exports. This week the focus is on Canadian Q3 GDP (Friday), where growth is expected to accelerate from the Q2 soft patch. We expect quarterly growth of 2% (saar), which is stronger than Q2’s 1.7% growth, but a touch softer than expectations centered on 2.5% growth. Last Friday’s Canadian September retail sales data, and other partial indicators bode well for Q3 Canadian GDP and we expect USD/CAD should consolidate near 1.0500 by the end of the week unless Canadian GDP prints on the weak side of our expectations and sends the cross higher.
Upcoming Economic Calendar Highlights Important for Exchange Rates
USD – ISM (2 December).
AUD – CAPEX (Thursday).
EUR – CPI (Friday), ECB policy meeting (5 December).
JPY – Current account (9 December).
CAD – Q3 GDP (Friday)
NZD – Trade balance (Wednesday), Credit aggregates (Friday), RBNZ Monetary Policy Statement (12 December)
GBP – UK GDP (Wednesday); BoE Carney speech (today and Thursday).
Thoughts from our Trading Team
The AUDUSD opened in European today trading at 0.9185 and initially saw buying pressure entering the market. With short term stops noted from 0.9210 upwards it was too much for the market to ignore and it looks as if we were destined to head to 0.9225/30….. How wrong we were! After touching a high of 0.9204, large selling orders were executed in the market, seeing us plough through corporate bids down to a low of 0.9106. We used this dip between 0.9130/50 to enter into a short term tactical long position but stopped ourselves out below 0.9125. Still looking for the gravity of the 0.9200 strike today to pull us back towards the highs of the day before the 3pm expiry later.
Heavy sell programs in NZD and AUD this morning have distorted and pulled us away from the Expiry levels (8250+9200) that had dominated the Asia session… we temporarily based against some good buying inside .8200-10 which by how our order board is skewed a little lower, looks Corporate related having seen WBCL as a standout name on the bid… the one bit of option interest which continues to dominate is the 1.1150 Strike in the cross… aside from that interbank has been caught a little wrong footed this morning after the earlier bullish WSJ headline: Pressure Builds for New Zealand Central Bank to Raise Rates pushed the cross down to an early low of 1.1125
Initially it was a polar opposite to yesterday morning as Euro started to grind higher from 1.3530s we even had an opposing statement *COEURE: ECB DOESN'T SEE LIKELY PROSPECT DISINFLATION TO DEEPEN. Causing knee jerk 20 tic rally from 1.3550-1.3570. From there we drifted back to 1.3535 and now trade 1.3550. With Thanks Giving and end of month bench marks upon us. The picture isn’t clear and the price is susceptible to one off flow and further statements from European officials. Support: 1.3490, 1.3440 - Resistance: 1.3580, 1.3610
Failure to take out 102 has seen some profit taking this morning with $Jpy drifting lower by some 20 tics.
Tight Choppy few hours range this morning with Cable doing a nice round trip 1.6160-1.6190- 1.6160-1.6190. Bank Of England Carney testimony to U.K Parliaments TreasuryCommittee. Amongst the comments *CARNEY SAYS 7% THRESHOLD IS NOT A RATE INCREASE TRIGGER".
GDP slightly below expectations at +1.8% vs 2.0%, leading to SA Govt bond rally to session highs. USD/ZAR had an initial spike to 0.1100 on the data, but has been met with steady selling pressure since, taking now through resistance at 10.0885 to a low of 10.0.0735. Slightly better bid now on the back of weaker AUD, EUR and a turnover in EURJPY, We're making a series of lower highs on a daily basis toward an eventual break of 10.0000, but for now there seem to be bids at the level - probably importers, local manufacturers. Resistance is at 10.1275 and 10.1925
AUD & NZD Today
AUD opened in Asia around 0.9160 and initially squeezed to just above 0.92c after the RBA’s Lowe didn't really say anything beyond what we have heard in recent weeks (AUD seen lower over time, intervention not ruled out but threshold is fairly high) … from there it has been all one way with a 1 cent drop to below 0.9110 as a large selling programme has taken AUD to a third consecutive day of lower lows … only some sporadic Exporter demand between current levels and 0.9080 stands between a further round of stops which would take us to the next area of buying interest into 0.9020/50 … look for sellers to emerge 0.9180/0.9220 on the day if we reverse higher. Kiwi also under selling pressure this morning via the same selling programme but as had been the case for recent weeks is being supported against the AUD cross as it looks to test 1.11c … some Exporter demand into 0.8160/80 this morning while we expect accounts to fade any move above 0.8250. NZ Trade balance later this afternoon.