Aussie Steady Despite Weakening Business Conditions, Dollar Stays Soft

 | Dec 12, 2017 01:37AM ET

Trading activities in the forex markets are rather subdued today. Dollar weakens mildly as traders are staying cautious ahead of FOMC rate decision later on Wednesday. Sterling is also soft as markets eye today's inflation data. On the other hand, New Zealand Dollar remains the strongest one this week and commodity currencies are generally firm. But there is no confirmed signs of a trend there yet. In other markets, US indices gained some ground overnight but DOW and S&P 500 are kept below the historical highs made last week. Treasury yields were mixed with 10 year yield gained a little by 0.002 to 2.385. Asian markets are also mixed with Nikkei trading nearly flat at the time of writing.

Australia business conditions dropped sharply

Australia NAB business conditions dropped sharply by -9 to 12 in November, down from 21. Business confidence dropped -2 to 6, down from 8. NAB chief economist Alan Oster noted that "we expected to see last month's spike in business conditions unwound fairly quickly as it both came as a bit of a surprise, and was also out of sorts with what we were seeing in some of the other leading indicators from the survey, such as forward orders." Also, "we are paying close attention to what now appears to be a downward trend in business confidence as that could naturally have some implications for decisions around hiring and investment."

For Australia, sluggish wage growth is a key concern for keeping inflation low. But Oster noted that "we saw some tentative signs of higher wages in the survey, although that does appear to be weighing on the confidence of some firms as well." However, "prices are rising the most in mining, while retail and personal services prices are the softest - a reflection of the cautious spending behavior by consumers."

Also from Australia house price index dropped -0.2% qoq in Q3, below expectation of 1.5% qoq.

AUD/NZD in steep pull back this week

AUD/NZD dives sharply this week. Kiwi was boosted by positive reactions to appointment of Superannuation Fund chief Adrian Orr as the next RBNZ Governor. That's is seen as guaranteeing a practical approach in RBNZ reform. AUD/NZD's recent fall from 1.1289 is so far seen as a corrective move. While more downside could be seen, we'd expect strong support at 1.0823 (50% retracement of 1.0368 to 1.1289 at 1.0829) to contain downside and bring rebound. Above 1.0987 resistance will turn bias to the upside for retesting 1.1289.