Australian Dollar Accelerates Up with Iron Ore Prices, Euro Capped after Post ECB Rally

Market overviews

Accelerating rally in iron ore prices pushes Australian broadly higher today, on the back of steadily firm risk sentiment. The Aussie is currently the strongest one for the week, followed by New Zealand Dollar, while Canadian is not far away, with help from oil prices. Sterling remains the worst one, on the “strong possibility” of no-deal Brexit and that somewhat helps support the Swiss Franc too. Dollar is currently the second weakest for the week, with rebound in jobless claims and deadlock in fresh fiscal stimulus.

Technically, Euro would be an interesting one as the post ECB rally lacked follow through momentum. EUR/USD has yet to break through 1.2177 temporary top. EUR/JPY and EUR/GBP are also held below 0.9142 and 126.68 resistance. EUR/CAD looks vulnerable after the brief break of 1.5447 support, and more decline is likely for 1.5313 low. EUR/AUD is also heading back to 1.6033 low after breaking 1.6122 support. Firm break of 1.6033 will resume whole fall from 1.9799.

In Asia, currently, Nikkei is down -0.41%. Hong Kong HSI is up 0.45%. China Shanghai SSE is down -0.67%. Singapore Strait Times is up 0.39%. Japan 10-year JGB yield is down -0.0018 at 0.014. Overnight, DOW dropped -0.23%. S&P 500 dropped -0.13%. NASDAQ rose 0.54%. 10-year yield dropped -0.033 to 0.908.

AUD overpowers CAD and NZD as iron ore prices skyrocket

Australian Dollar surges broadly today and even over-powers other commodity currencies. Surging iron ore prices are seen as a factor driving the moves. Iron ore entered a stage of parabolic rally after authorities at Pilbara Ports, the world’s largest iron ore export terminal, issued a cyclone warning, exacerbating an already tight market.

AUD/NZD’s strong rebound now argues that corrective fall from 1.1043 might have completed at 1.0418, just ahead of 61.8% retracement of 0.9994 to 1.1043 at 1.0395. Break of 55 day EMA is a bullishness and further rise is expected as long as 1.0568 support holds. Focus is now on key resistance at 38.2% retracement of 1.1043 to 1.0418 at 1.0657. Decisive break there will firm affirm near term bullish reversal and target 61.8% retracement at 1.0804 and above.

AUD/CAD’s break of 0.9617 resistance also indicates resumption of rebound from 0.9247. It’s possibly that rise from 0.8066 is resuming too. But AUD/CAD would need to take out 0.9696 high to confirm. In the case, next upside target is 38.2% projection of 0.8066 to 0.9696 from 0.9247 at 0.9870. Break of 0.9456 support would extend the consolidation form 0.9696 with another falling leg instead.

RBNZ Orr: Adding house prices considering could make monetary policy less effective

RBNZ published a detailed response to request from Finance Minister Grant Robertson regarding adding consideration of house prices into monetary policy. Governor Adrian Orr warned, “adding house prices to the monetary policy objective would be unique internationally, which could make monetary policy less effective and impact financial market efficiency.”

Instead, “if you wish to strengthen the Reserve Bank’s role in relation to house prices, our recommendation is that this would be best achieved by amending our financial policy remit.” “There are considerably less trade-offs between the Reserve Bank’s financial policy objective, of a sound and efficient financial system, and stable house prices,” Orr wrote. “It would also enable the Reserve Bank to use financial policies that can be specifically targeted at key drivers of the housing market.”

New Zealand BusinessNZ manufacturing rose to 55.3, ending 2020 on a positive note

New Zealand BusinessNZ Performance of Manufacturing Index rose to 55.3 in November, up 2.9 pts. Production rose 3.4 pts to 55.4. New orders surged 4.8 pts to 57.6. However, Employment dropped -0.9 pts to 51.5.

BusinessNZ’s executive director for manufacturing Catherine Beard said, “overall, the sector is shaping up to end 2020 on a positive note, which would be a considerable contrast to what was seen during the first half of the year.”

BNZ Senior Economist, Doug Steel said that “as a measure of change, the PMI suggests that the manufacturing sector continues to move in the right direction after getting hit hard earlier in the year by COVID related restrictions.”

BoC Beaudry: Could reassess the effective lower bound, but still positive, policy rate

In a speech, BoC Deputy Governor Paul Beaudry reiterated in a speech that “whatever the outcome, the Bank remains committed to providing the monetary policy stimulus needed to support the recovery and achieve the inflation objective.”

“The exit strategy for our QE program is tied to our inflation goals. We will pursue quantitative easing until our economic recovery is well underway,” he added.

He also emphasized, “should things take a more persistent turn for the worse, we have a range of options at our disposal to provide additional monetary stimulus… It could also include reassessing the effective lower bound, which would allow for the possibility of a lower — but still positive — policy rate.”

UK Johnson: Get ready for that Australian option with EU

UK Prime Minister Boris Johnson warned yesterday’s that there’s now a “strong possibility” of leaving the EU with no-deal. He has asked the cabinet to “make those preparations”. though, negotiation will continue until the newly set deadline of Sunday.

He said, “I do think we need to be very, very clear. There is now a strong possibility – a strong possibility – that we will have a solution that is much more like an Australian relationship with the EU than a Canadian relationship with the EU.”

“What I told the cabinet this evening is to get on and make those preparations. We’re not stopping talks, we’ll continue to negotiate but looking at where we are I do think it’s vital that everyone now gets ready for that Australian option,” Johnson said.

Looking ahead

Germany CPI final and Italy industrial output are featured in European session. US will release PPI, and Michigan consumer sentiment.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7464; (P) 0.7502; (R1) 0.7577; More…

AUD/USD accelerates to as high as 0.7571 so far and intraday bias remains on the upside. Current rally 0.5506 should target 0.7635 key long term fibonacci level. Sustained break there should confirm long term trend reversal. On the downside, break of 0.7485 minor support will turn intraday bias neutral, and bring consolidations, before staging another rally.

In the bigger picture, the sustained trading above 55 week EMA (now at 0.6978) is a sign of medium term bullishness. Nevertheless, AUD/USD will still need to overcome 38.2% retracement of 1.1079 (2011 high) to 0.5506 (2020 low) at 0.7635 decisively to indicate completion of long term down trend from 1.1079. Otherwise, current rebound from 0.5506 could still turn out to be a correction in the long term down trend.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:30 NZD Business NZ PMI Nov 55.3 51.7 52.4
07:00 EUR Germany CPI M/M Nov F -0.80% -0.80%
07:00 EUR Germany CPI Y/Y Nov F -0.30% -0.30%
09:00 Italy Italy Industrial Output Y/Y Oct 1.10% -5.10%
13:30 USD PPI M/M Nov 0.20% 0.30%
13:30 USD PPI Y/Y Nov 0.40% 0.50%
13:30 USD PPI Core M/M Nov 0.20% 0.10%
13:30 USD PPI Core Y/Y Nov 1.10%
13:30 CAD Capacity Utilization Q3 77.80% 70.30%
15:00 USD Michigan Consumer Sentiment Index Dec P 77 76.9