The Australian dollar falls heavily. Again

Mike Weaver / ABC via Getty Images
  • The Australian fell heavily for a second straight session on Thursday.
  • Stronger-than-expected US GDP growth in late 2018 was the main catalyst behind the fall.
  • There was no reaction to positive remarks from Larry Kudlow, Donald Trump’s chief economic adviser, that progress in trade negotiations with China has been “terrific”.
  • The economic calendar is busy on Friday, including in Asia. China’s manufacturing PMI for February will be a highlight.

The Australian dollar fell heavily again on Thursday, adding to the losses seen a session earlier.

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

AUD/USD 0.7093 , -0.0045 , -0.63%
AUD/JPY 79.05 , -0.18 , -0.23%
AUD/CNH 4.7527 , -0.0171 , -0.36%
AUD/EUR 0.6233 , -0.0046 , -0.73%
AUD/GBP 0.5348 , -0.0016 , -0.30%
AUD/NZD 1.0414 , -0.0009 , -0.09%
AUD/CAD 0.9334 , -0.0057 , -0.61%

After opening the session at .7138, the AUD/USD inched higher in early Asian trade, supported initially by a stronger-than-expected lift in Australian business investment intentions for the financial year ahead.

However, after hitting a session high of .7166, the Aussie gave back all those gains — and more — following the release of China’s official manufacturing PMI for February, revealing activity levels deteriorated at the fastest pace in nearly three years.

News that the summit between US President Donald Trump and North Korean leader Kim Jong Un concluded abruptly without any further progress on nuclear disarmament also did little to help the Aussie’s cause, raising renewed concern that progress in US-Sino trade negotiations could also suffer a similar fate.

After ambling through European trade, the Aussie fell sharply as news broke that US economic growth exceeded expectations in the final three months of 2018.

“The better-than-expected Q4 US GDP outcome of 2.6% annualised growth couldn’t be ignored,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.

“It is almost wholly responsible for the re-strengthening in the US dollar after an earlier fall.”

The annualised rate was higher than the 2.2% level expected by financial markets, helping US bond yields lift by around two to three basis points across the curve.

Core PCE inflation — the Federal Reserve’s preferred measure of price pressures — also topped expectations, lifting 1.7% compared to the same quarter a year earlier. Despite coming in above the 1.6% pace expected, it remains below the Fed’s 2% inflation target.

The GDP data saw the AUD/USD fall back below the .7100 level, eventually bottoming out at .7091. It continues to sit just above the lows late with an hour left to trade, finding little support from remarks made by Larry Kudlow, Trump’s chief economic adviser, that progress in trade negotiations with China has been “terrific”.

The lack of reaction suggests markets have grown a little sceptical of such remarks. Now that progress has been achieved, and priced in, one suspects that more than words will now be required to see optimism lift further.

Investing.comAUD/USD Hourly Chart.

Turning to the day ahead, there’s a smattering of local data releases that will attract a lot of attention but are unlikely to move the Aussie.

The Ai Group will release its Performance of Manufacturing Index (PMI) for February at 8.30am AEDT. The separate Commonwealth Bank manufacturing PMI read will follow suit at 9am AEDT.

At 10am AEDT, CoreLogic will release its February Home Value Index for February with another chunky fall expected, albeit not a large as those seen in the previous two months.

Outside of Australia, most interest will be on the China manufacturing PMI from IHS Markit that will arrive at 12.45pm AEDT. This survey is conducted by a private firm, rather than the Chinese government, and tends to focus more on smaller manufacturing firms. In the government’s PMI report for February released on Thursday, activity levels at smaller manufacturers were particularly weak.

The economic calendar is busy in New Zealand with ANZ Consumer Confidence, building permits and Q4 Terms of Trade all set to be released. The same can be said for Japan with Tokyo inflation, national unemployment and Q4 business capital expenditure figures all arriving in the first half of the Asian session.

Later in day, the main data highlights will be German and Italian unemployment, manufacturing PMIs from the Eurozone, US and UK, UK consumer credit, Canadian Q4 GDP along with the University of Michigan consumer sentiment and personal income and expenditure figures from the United States.

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