The Australian dollar is drifting higher

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  • The Australian dollar gained modestly against most major crosses on Thursday.
  • The ECB delivered few surprises at its December monetary policy meeting, although slightly dovish remarks from Mario Draghi and downward revisions to the bank’s GDP and inflation forecasts weighed on the euro.
  • China will release major economic data at 1pm AEDT. The NAB says “all are important for the Aussie market”.

The Australian dollar drifted higher on Thursday in what was an uneventful session.

Here’s the scoreboard at 8am in Sydney on Friday.

AUD/USD 0.7224 , 0.0005 , 0.07%
AUD/JPY 82.06 , 0.29 , 0.35%
AUD/CNH 4.9685 , 0.0102 , 0.21%
AUD/EUR 0.6358 , 0.0008 , 0.13%
AUD/GBP 0.5703 , -0.0012 , -0.21%
AUD/NZD 1.0520 , -0.0002 , -0.02%
AUD/CAD 0.9646 , 0.0009 , 0.09%

After opening at .7219, the AUD/USD rose to as high as .7247 in European trade, helped by increased optimism over thawing trade tensions between the United States and China.

However, the release of strong US jobless claims data is helping to appease growing concern about a slowdown in hiring, following a disappointing increase in payrolls in November, along with an admission from China’s central bank chief that trade tensions have impacted the Chinese economy, saw the AUD/USD give back much of its earlier gains towards the close.

“[The] USD/CNH lifted modestly after the PBoC Governor Yi stated China‚Äôs economy faces rising downward pressure, and external shocks are challenging monetary policy,” said Richard Grace, Chief Currency Strategist at the Commonwealth Bank.

“This is the first acknowledgment by a Chinese official that the tariffs and trade tensions are affecting the Chinese economy.”

For much of the past year, the Aussie dollar and Chinese yuan have often moved in lockstep with each other, reflecting that many still use the AUD as conduit to trade sentiment towards the Chinese economy given the strong economic linkages between the two nations.

Investing.comAUD/USD Hourly Chart

In terms of the major crosses, the euro came under modest downside pressure during the session following the European Central Bank’s (ECB) December monetary policy meeting.

As expected, the bank left its key policy rate unchanged at -0.4%. It also announced that its asset purchase program will end this month after four years of operation, again, as expected.

However, the bank’s commentary and forecasts were slightly dovish in nature, resulting in the euro falling modestly against most major crosses.

“The ECB Governing Council continues to expect keeping the key interest rates at their present levels ‘at least through the summer of 2019’ and confirmed its net asset purchases under the asset purchase programme (APP) will end in December 2018,” Grace said.

“However, ECB President Mario Draghi stated the risks surrounding the Eurozone growth outlook are still ‘broadly balanced’ but warned the balance of risks is moving to the downside in large part because of external uncertainties.”

That remark, along with downward revisions to the bank’s growth and inflation forecasts next year, initially saw the euro fall before recovering in the latter parts of the session.

The other noteworthy move came from the Japanese yen which weakened on the back of a modest improvement in investor risk appetite.

Turning to the day ahead, the main area of focus in Asia will be the release of major Chinese economic data for November at 1pm AEDT.

Industrial output is expected to have grown 5.9% from a year earlier, unchanged from the level seen in October. Retail sales are seen increasing by 8.8% in nominal terms over the year, an improvement on the 8.6% lift seen in the year to October.

Fixed asset investment between January to November is tipped to increase by 5.8% compared to the same period in 2017. In October, it grew by 5.7% year-on-year, year-to-date.

“All are important data points for the Aussie market,” said David de Garis, Economist at the National Australia Bank.

Prior to those data points, the Bank of Japan’s Q4 Tankan survey will also be released at 10.50am AEDT. Japan’s flash manufacturing PMI report for December, along with industrial production data for November, will also arrive during the session.

Later on, the main highlights will be be flash manufacturing and services PMI reports from Europe and US, Italian industrial orders and sales, Eurozone labour costs along with retail sales, industrial production and business inventories from the United States.

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