Daily Forex Commentary

06 January 2017 - USD tumbles as China attempts to curb capital outflows

By Matt Richardson

New Zealand Dollar: 

The New Zealand dollar advanced through 0.70 U.S cents through trade on Thursday benefiting from diminishing USD demand. The Kiwi touched intraday highs at 0.7036 as investors sold down USD holdings after Chinese policy makers increased borrowing costs to curb capital outflows and stem the Greenbacks upward momentum. With little macroeconomic data supporting the upward rally the Kiwi’s bullish run looks stretched on moves approaching 0.7050 with further gains likely to stem from USD weakness as opposed to Kiwi strength with direction today derived from Key U.S labour market data.  

We expect a range today of 0.6930 – 0.7130

 

Australian Dollar:

The Australian Dollar once again continued to climb on the back of profit taking and consolidation as investors begin the New Year with fresh outlooks curbing the strength of the US Dollar.  Assisting the Australian Dollar’s strength were data releases locally and out of China, the AIG index came in strong at 57.7 in December which was the highest monthly result since 2007 along with China’s Caxin Services PMI picked up steam in December to rise to 54.4; PMI data is globally recognised as a reading above 50 indicates expansion. Today we see the release of Trade Balance which is expected to fall by -0.500B and the all-important US employment data

We expect a range today of 0.7260 – 0.7380

 

Great British Pound:

Overnight the Great British Pound continued to strengthen against the Greenback after another positive data release. Services PMI report has helped the Sterling break through 1.2400 level. The December services purchasing managers index rose for a third consecutive month to 56.2 up from the previous month 55.2, the fastest expansion since July 2015. Having reached an overnight high of 1.2434, the pair is currently trading at 1.2416. We now expect support to hold on moves approaching 1.2380 while any upward push will likely meet resistance around 1.2494. A quiet session expected ahead tonight with little to no economic data due.

We expect a range today of 1.7500 – 1.7800

 

Majors:

The U.S dollar sell off continued through trade on Thursday moving through three week lows when valued against a raft of key currency counterparts. Wednesday’s downward correction was extended as investors continued to square positions and take profits reacting to a rise in borrowing cost in Hong Kong.  Markets sent the CNH soaring higher to touch near two month highs, markings it largest two day appreciation in 7 years and amplifying the selling pressure mounting on the world’s base currency. The Dollar plunged 1.5% against the Yen while the Euro moved easily through resistance at 1.05 to touch intraday highs at 1.0613. Despite an uptick in services data and a better than expected decline in jobless claims USD losses were compounded by a softer than anticipated preliminary Non-Farm payroll report  suggesting employment gains in December missed their mark. With an increasing sentiment the recent bullish run may have peaked investors are simply squaring positions leading into today’s non-farm payroll numbers and wage growth reports for direction through the end of the year’s first week of trading.

 

Data releases:

AUD:

Trade Balance

NZDNo Data

JPY:

Average Cash Earnings

GBPNo Data

EUR:

German Factory Orders, German Retail Sales, French Trade Balance and Eurozone Retail Sales

USD:

Average Hourly Earnings, Unemployment Rate, Non-Farm Employment Change, Trade Balance, Factory Orders and FOMC Member Evans Speaks

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