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The Aussie dollar just took a big hit

David Scutt
  • The Australian dollar fell heavily on Wednesday, especially against the greenback, British pound and euro.
  • A big miss on Australian economic growth in the September quarter, and dovish remarks from the Bank of Canada, were the main catalysts behind the Aussie's weakness.
  • Australian trade and retail sales data will be released today. RBA Deputy Governor Guy Debelle will also deliver a speech. The economic calendar is also busy in the United States following a market holiday.

The Australian dollar fell sharply on Wednesday, losing ground on the back of a big undershoot on Australian economic growth in the September quarter and dovish remarks from the Bank of Canada which resulted in broad-selling in commodity-linked currencies.

Here's the scoreboard at 8.10am in Sydney on Thursday.

AUD/USD 0.7268 , -0.0069 , -0.94%
AUD/JPY 82.27 , -0.48 , -0.58%
AUD/CNH 4.9848 , -0.0406 , -0.81%
AUD/EUR 0.6406 , -0.0061 , -0.94%
AUD/GBP 0.5708 , -0.006 , -1.04%
AUD/NZD 1.0539 , -0.0048 , -0.45%
AUD/CAD 0.972 , -0.0013 , -0.13%

After jumping to as high as .7355 earlier in the session on the back of positive remarks from China's Ministry of Commerce regarding trade negotiations with the United States, something that acted to boost not only the Aussie but also the offshore-traded yuan, the AUD/USD began to slide following the release of Australia's Q3 GDP report which came in well under expectations.

After falling back towards the .7300 level, the AUD/USD broke below the figure in late Asian trade, reacting to increased chatter about the prospect that the next move in the RBA cash rate may be down rather than up.

After treading water in European trade, the selloff in the Aussie resumed in North American trade on the back of dovish remarks from the Bank of Canada (BoC) following its December monetary policy meeting.

"Oil prices have fallen sharply since the October Monetary Policy Report," the BoC said. "In light of these developments and associated cutbacks in production, activity in Canada’s energy sector will likely be materially weaker than expected."

It added that recent data suggests the Canadian economy is carrying "less momentum going into the fourth quarter".

Importantly, it also cited the impact of recent weakness in crude prices on the outlook for inflationary pressures.

"CPI inflation, at 2.4% in October, is just above target but is expected to ease in coming months by more than the Bank had previously forecast, due to lower gasoline prices," it said.

"Downward historical revisions by Statistics Canada to GDP, together with recent macroeconomic developments, indicate there may be additional room for non-inflationary growth."

The remarks saw the probability of a 25 basis point rate hike from the BoC in January plummet, weighing on the Canadian dollar as a consequence. That also weighed on other commodity-linked currencies, including the Aussie.

"It’s not often you can say that a central bank outside of Australia other that the Federal Reserve is capable of moving the Aussie dollar, but that is what happened last night," said Ray Attrill, Head of FX Strategy at the National Australia Bank.

"The BoC statement saw the implied probability of the next rate rise occurring after the January meeting fall from about 65% to less than 25%."

Along with a modest reversal of earlier strength in the Chinese yuan, that saw the AUD/USD slide to as low as .7355 before recovering modestly in recent trade.

Turning to the day ahead, it will be another busy one for traders with a raft of important data releases scheduled at home and abroad.

Domestically, Australia will receive retail sales and trade data for October at 11.30am AEDT.

Given weakness in household consumption in the September quarter, the retail sales report is likely to attract more attention than the trade figure, especially as the RBA regards the outlook for household consumption as "one continuing source of uncertainty".

This 10-second guide has more on what to look out for in the retail sales report.

For trade, markets are looking for a surplus of $3 billion, similar to the level reported in September.

On the policy front, RBA Deputy Governor Guy Debelle will also speak at the ABE dinner in Sydney from 8.05pm AEDT.

"On past ABE annual dinner form, they’ll be plenty of Q&A," says Attrill.

Outside of Australia, most of the remaining data highlights come from the US with markets reopening after a holiday on Wednesday to mark the passing of former US President George Bush Senior.

Ahead of Friday's non-farm payrolls report, markets will receive monthly private payrolls figure the ADP for November. Services PMIs, factory order, jobless claims, trade and labour productivity reports will also be released.

Along with the ADP report, the ISM services PMI report will garner plenty of attention.

Elsewhere, German factory orders and Canadian trade data will also be released.

On the central bank front, Fed Chair Jerome Powell is scheduled to speak. FOMC members Williams and Bostic will also be in action, as will Bank of Canada Governor Stephen Poloz.

Finally, OPEC will hold its semi-annual meeting in Vienna. An output cut is expected, the only question is how large it will be.