USD strength was a feature as the respective time zones had a chance to digest the FOMC minutes and the possibility of rising interest rates. AUD printed to a 0.7146 low and NZD fell below 0.6750. Equities were lower in Asia & Europe as the US 10yr peaked at 1.75%. Energy prices continue to grab headlines, especially in Europe, leading to a move higher across the broader dynamic.
The ASX fell 2.7% on Thursday, its worst session in 16 months, largely driven by tech stocks which fell 6.4%. AUD/USD spent the day falling steadily to finish below 0.7160. Brent crude was little changed.
In European data, German construction PMI for December was 48.2 up from 47.9 in November. UK Services PMI drops to a 10-month low of 53.6 in December (53.2 expected). Eurozone PPI for November printed at 1.8% up from an expected 1.5% (5.4% previously).
The Bloomberg dollar index erased its gains, down from a 2-week high. AUD/USD reached daily lows of 0.7146 before rebounding back toward 0.7180. NZD/USD similarly rebounded from lows of 0.6735 back above 0.6760. EUR/USD fell to 1.1285 and then reversed, climbing to daily highs of 1.13265.
US weekly jobless claims were weaker than expected with initial claims rising slightly to 207k to fall short of expectations of 195k while continuing claims rose to 1.754 mio from 1.718 mio, again falling short of expectations of 1.678 mio. No real reaction to the data though the USD did briefly weaken over the NY morning, this helping EUR/USD and GBP/USD to respective highs of 1.1332 and 1.3558.
The second round of US data saw December ISM Services fall to 62.0, down from 69.1 and below expectations of 67.0. November Factory Orders rose 1.6% to beat estimates of 1.5% though the ex-transport measure was +0.8% compared to expectations of +1.1%. Finally, November Durable Goods Orders were revised up to 2.6% from 2.5%.
Again, a very limited reaction to the data with the USD slowly recovering into the London rate set with NZD/USD slowly drifting down to new daily lows of 0.67335. Wall St meanwhile was mixed over the NY morning with markets either side of flat. Across the Atlantic, European markets remained in the red into the close with the FTSE losing 0.9%.
Overnight Currency Range
Currency Pair Low High
AUD/USD 0.7146 0.7222
EUR/USD 1.1285 1.1332
GBP/USD 1.3491 1.3558
USD/JPY 115.62 116.18
NZD/USD 0.6733 0.6800
USD/CAD 1.2707 1.2812
USD/CNH 6.3722 6.3975
AUD/JPY 82.65 83.87
AUD/NZD 1.0600 1.0622
The FOMC minutes have seen a broad based, somewhat sustained pattern of USD buying as the market prices up to a 84% chance of a rate hike in March. David Doyle writing “The FOMC Minutes provided important context on the potential for balance sheet run-off. This is likely to come earlier and be more aggressive than in the last cycle. There was notable hawkish commentary elsewhere in the Minutes including reduced optimism on labour force participation and greater concern with inflation”.
For the AUD markets are looking at how quickly the RBA follow suit, as markets believe the divergence is what will be a key driver of the AUD lower. Currently the market is pricing more than 2 hikes from the Fed before mid-year, whereas there is less than 1 currently priced locally.
The AUDUSD has broken down through the 0.7180 level that previously provided support, and hence markets are now looking for buyers to be stepping in ahead of 0.7100/05. Sellers of AUD remain patient and look for a move back towards 0.7260/70.
Event Risk Data Today
UK: December Construction PMI
US: December employment report
EC: Nov Retail Sales, Dec Preliminary CPI, Dec Consumer & Economic Confidence