Daily Forex Commentary

12 December 2016 - Dovish ECB commentary hangs over Euro; Greenback rallies

By Matt Richardson

New Zealand Dollar:    

Powered by a day on Wall Street which saw US equity markets push towards another fresh high, investors were encouraged late last week by some impressive data prints from the world’s largest economy. Off the back of a Sentiment Index from the United States which notched up its highest read since January 2015, flows have and well and truly favoured the basket of currencies more generally associated with pockets deemed riskier in nature. Reaching a high of 0.7223 when valued against its US Counterpart last week, the biggest potential flare up to risk flows this week is likely to come from the US Federal Reserve who are widely tipped to raise interest rates for only the second time since the Global Financial Crisis. Opening marginally weaker the Kiwi currently buys 0.7128 US Cents.

We expect a range today of 0.7050 - 7180

 

Australian Dollar:

Absorbing some of the lowest economic growth rates witnessed in close to a decade during the third quarter of this year, the Australian dollar remained well supported for the much of last week when valued against its US Counterpart. Making several attempts to breach well-trodden resistance lines at the 75 US Cents mark, the month long rally which has engulfed global equities since Donald Trump’s campaign win has continued to play into the hands of growth and commodity linked currencies that is despite the impressive rise of the US Dollar. Whilst several macro flows from Australia’s most important trading partner are likely to have a profound impact on the Australian dollar early this week so too will Thursday’s labour market report which remains set to be the domestic highlight. With plenty of water still set to pass under the bridge before the quieter Christmas period the Australian dollar opens marginally higher this morning at a rate of 0.7455.

We expect a range today of 0.7380 – 0.7500

 

Great British Pound:

The Great British Pound edged marginally lower through trade on Friday touching intraday lows at 1.2553. Investors looked to the world’s base currency in the wake of the ECB’s monetary policy announcement and a subsequent increased demand for U.S equities forcing Sterling toward fresh weekly lows.  The move however was somewhat muted as markets appeared wary and refused to extend downward moves ahead of key FOMC and BoE policy announcements later this week. Analysts will be keenly attuned to both central banks as catalysts to force Cable outside its recent range bound trading pattern, with focus squarely on FOMC commentary and GBP macroeconomic indicators as markers to prompt hawkish BoE rhetoric.

We expect a range today of 1.7500 -1.7700

 

Majors:

The Euro sell off continued through trade on Friday as investors dour reaction to the ECB’s extended quantitative easing program dampened demand for the 19 nation combined unit. Despite lowering the size of its monthly bond purchases the ECB extended acquisitions through December 2017 while leaving scope to raise the size of procurements should it be deemed necessary. The Dovish undertone surprised markets and forced the Euro back through 1.06 touching intraday lows at 1.0528.  Investors hurriedly scrambled to adjust positions following the ECB’s announcement squaring holdings ahead of the FOMC and Fed’s highly anticipated rate announcement. With many analysts pricing in a rate hike this coming Wednesday the gulf between Central Bank policies appears to be widening amplifying demand for U.S treasury yields and adding support to the recent Greenback rally. Attentions this week will be squarely focussed on the FOMC and any hint as to forward monetary policy guidance and the pace of future rate adjustments.  

 

Data releases:

AUD:

No Data

NZDNo Data

JPY:

Core Machinery Orders, PPI y/y, Tertiary Industry Activity and Prelim Machine Tool Orders.

GBPCB Leading Index

EUR:

No Data

USD:

10 year Bond Auction and Federal Budget Balance 

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