US Dollar Outlook: GBP/USD, AUD/USD, USD/CAD - US Market Open

2020-01-02 12:00:00

Justin McQueen,

MARKET DEVELOPMENT

USD Begins 2020 on the Front Foot
UK Businesses Report Reduction in Brexit Uncertainty Since Election
AUD & NZD Pullback From Overbought Territory

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USD: The US Dollar begins 2020 on a firmer footing, gaining against its major G10 counterparts, having bounced back from its year-end tumble. On the technical front, the 50% Fibonacci retracement (95.90) from the Jan 2017 to Mar 2018 drop looks to have supported the greenback. However, with market liquidity relatively thin, price action may remain subdued until next week.

GBP: The Pound is among the underperformers against the US Dollar, which in turn sees GBP/USD dip below 1.3200. UK data remains soft as the final Manufacturing PMI figure slightly missed expectations, with both new orders and export orders falling sharply. Elsewhere, a BoE survey highlighted that Brexit uncertainty among firms had eased slightly since the general election. However, 42% of UK businesses (up from 34%) don’t see Brexit uncertainty being resolved until at least 2021, which in turn may keep business investment subdued, thus going against the BoE’s forecast of a material increase.

Source: Bank of England

AUD / NZD: Amid the bid in the US Dollar, both the Aussie and Kiwi have shown a modest reversal in direction with AUD failing the hold above 0.70 after rejecting the 23.6% fib at 0.7016, while NZD breaks below 0.67. That said, with both currencies situated in overbought territory, there is a risk of a larger reversal, particularly in the NZD and thus we see AUD/NZD reclaiming 1.05.

CAD: A near term bottom for USD/CAD having traded below the 1.30 handle for the first time since October 2018. A marginal easing in oil prices as well as USD strength has seen USD/CAD break back above 1.30. However, eyes are on topside resistance at 1.3016 (2019 low) and 1.3036 (October 2019 low), which offers the first test of the recovery in the pair.