The Australian dollar can't break higher no matter how hard it tries

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  • The Australian dollar came under renewed selling pressure on Wednesday, trimming earlier gains to close mixed for the session.
  • The greenback was supported by safe-haven buying, largely due to renewed concerns over Italian budget negotiations, Brexit uncertainty as well as a steep drop in US and European stocks.
  • China will release a raft of major economic data today, headlined by Q3 GDP. However, it may not be that report that will move the Aussie dollar during the session.

The Australian dollar came under renewed selling pressure on Wednesday, trimming earlier gains to close mixed for the session.

Here’s the scoreboard at 8am in Sydney.

AUD/USD 0.7098 , -0.001 , -0.14%
AUD/JPY 79.63 , -0.43 , -0.54%
AUD/CNH 4.9241 , -0.001 , -0.02%
AUD/EUR 0.6198 , 0.0019 , 0.31%
AUD/GBP 0.5452 , 0.0033 , 0.61%
AUD/NZD 1.0845 , -0.0004 , -0.04%
AUD/CAD 0.9289 , 0.0032 , 0.35%

After pushing to as high as .7151 in European trade following a shock plunge in Australian unemployment to 5% in September, the AUD/USD spent the second half of the session easing lower, reflecting another steep selloff in European and US stocks, weakness in commodity markets as well as softness in the offshore-traded Chinese yuan which fell to the lowest level since mid-August against the greenback.

In the end, the AUD/USD closed the session at .7099.

Investing.comAUD/USD Hourly Chart

The noticeable deterioration in investor sentiment undoubtedly helped to boost the greenback.

However, as David de Garis, Economist at the National Australia Bank notes, that was largely due to weakness in other major currencies such as the euro, British pound and Canadian dollar, rather than US dollar strength.

“The USD has found some more support again, though it’s been as much from softness in counterparts rather than renewed appetite for the big dollar, it seems.”

The euro was undermined by renewed tensions between Italy and the European Commission over the nation’s 2019 budget. The British pound was also pressured due to a miss on UK retail sales along with ongoing Brexit uncertainty.

The Canadian dollar was also hit by a slide in crude oil prices which fell between 0.9% to 1.5%.

Turning to the day ahead, there’s a raft of major economic data scheduled for release, headline by China’s Q3 GDP report at 1pm AEDT.

From a year earlier, GDP is expected to grow by 6.6%, a slight moderation from the 6.7% pace seen in the June quarter of this year. In the past three years, the GDP figure presented by the Chinese government has either been in line with market expectations or exceeded them by 0.1 percentage points.

As such, don’t be surprised to see a similar outcome on this occasion, nor a noticeable reaction in financial markets.

Based on recent evidence, if there is to be a market reaction, it will likely be in response to industrial output and urban fixed asset investment figures for September that will be released alongside the GDP report.

These provide a better snapshot of recent economic conditions, hence why markets tend to pay closer attention to them given the GDP report rarely offers a surprise.

Industrial output is tipped to grow 6% from a year earlier, down marginally from 6.1% pace in the 12 months to August.

Urban fixed asset investment is seen lifting by 5.3% in the first nine months of the year compared to the same period a year earlier. Between January to August, investment grew 5.3% year-on-year.

Retail sales data for September will also be released with an increase of 9% expected over the year, unchanged from the level reported in August.

Before the China data dump arrives, Japan will also release inflation data for September at 10.30am AEDT.

Ex-fresh food prices, inflation is tipped to lift by 1% over the year, up from 0.9% in the 12 months to August. Ex-fresh food and energy, inflation is expected to increase by 0.4% over the same period, the same level seen a month earlier.

New Zealand migration data will also be eyed for Kiwi dollar traders when it arrives at 8.45am AEDT.

In the second half of the session, Canadian retail sales and inflation, UK public sector borrowing, Eurozone current account and existing home sales from the United States are the main headline acts.

On the central bank front, FOMC members Kaplan and Bostic, along with the BoE’s Carney, are all expected to deliver speeches.

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