The Aussie Dollar Takes a Hit, with the Focus Shifting to Stats and the USD

The Aussie Dollar took an early hit on dovish commentary from RBA Governor Lowe. Trump failed to rattle the markets in his State of the Union speech, leaving economic data and Brexit chatter in focus through the day.
Bob Mason
Dollar, euro, pound, yen
Dollar, euro, pound, yen signpost

Earlier in the Day:

There were no material stats released through the Asian session this morning to provide direction. The lack of stats left the markets to focus on Trump’s State of the Union speech and central bank commentary through the morning.

For the Aussie Dollar

Following some particularly weak economic data out of Australia on Tuesday, RBA Governor Lowe spoke in the early part of the session.

An Aussie Dollar rebound on Tuesday came following the release of the RBA Rate Statement that refrained from mentioning the possibility of a rate cut. Following disappointing retail sales and trade figures, Governor Lowe talked of an equal chance of either a rate hike or a rate cut.

The Aussie Dollar coughed up Tuesday’s gains, with the prospects of a rate cut more likely than not should wage growth fail to accelerate. The lack of wage growth, falling house prices, ballooning household debt and negative sentiment towards the economic outlook would suggest that an equal chance of either a hike or a cut is on the more optimistic side.

The Aussie Dollar moved from $0.72383 to $0.71777 on Governor Lowe’s comments, before falling further to $0.7153 at the time of writing, a loss of 1.12% for the session.

Elsewhere

The Japanese Yen stood at ¥109.76 against the Dollar, up by 0.18% for the session. The Kiwi Dollar was down by 0.39% to $0.6869.

Trump’s State of the Union speech had a relatively muted impact on market risk appetite through the morning, with the Asian equity markets making reasonable gains.

The Aussie Dollar’s slide will have contributed to the Kiwi Dollar’s early losses, while ¥110 levels appear to be the near-term floor for the Yen against the Dollar. Economic uncertainty continues to provide near-term support for the Japanese Yen.

The Day Ahead:

For the EUR

Economic data scheduled for release later this morning is limited to December factory order numbers out of Germany. Forecasts are for a partial recovery from November’s 1% slide and the numbers will need to be better than forecasts to provide the EUR with any support.

Trump’s State of the Union speech will be a negative for the EUR near-term, with focus on trade terms suggesting that the EU may be next on the U.S Administration’s hit list. Throw in Brexit and the possibility of a no deal and the EUR could be in for a choppy few weeks ahead.

At the time of writing, the EUR was down 0.06% to $1.1399.

For the Pound

There are no material stats scheduled for release out of the UK today. Focus through the day will remain on Brexit and tomorrow’s BoE monetary policy decision and forecasts for both, inflation and growth.

On the news front, the British PM is in Northern Ireland and Irish PM Varadkar is in Brussels to discuss contingency plans in the event of a no-deal departure from the EU.

Activity has certainly picked up, with time running out and Britain no closer to addressing the Irish backstop issue that has hindered negotiations.

At the time of writing, the Pound was up 0.09% to $1.2957, with Brexit chatter the key driver throughout the day.

Across the Pond

Trump’s State of the Union speech this morning saw the Dollar Spot Index fall from $96.14 to $96.04 before recovering. The Dollar was unruffled by Trump’s talk of trade, immigration and the need for the Mexican Wall.

For the day ahead, economic data scheduled for release includes 4th quarter nonfarm productivity and unit labor cost figures and November’s trade data. The focus will be on the unit labor cost figures, which are forecasted to be Dollar positive.

Outside the numbers, we can expect more chatter from the U.S President through the day.

At the time of writing, the Dollar Spot Index was up by 0.01% to 96.08.

For the Loonie

Economic data scheduled for release include building permit and housing start figures, which will unlikely to have a material impact on the Loonie, leaving the focus on January’s Ivey PMI.

Forecasts are for the Ivey PMI to come in on the softer side, which would be a negative for the Loonie.

Outside of the numbers, Bank of Canada deputy governor Lane is scheduled to speak, with any chatter on monetary policy likely to have a material influence ahead of the Ivey PMI release.

The Loonie was down by 0.18% to C$1.3150, against the U.S Dollar, at the time of writing.

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