Fear of AAA loss a weight on Aussie Dollar

Share Markets:

News that China's navy seized a US drone in international waters in the South China Sea drove geopolitical concerns, weighing on the US stockmarket.

The Dow was unchanged, while the S&P 500 fell 0.2% and the Nasdaq dropped 0.4% for the session.

Interest Rates: 

The US 10-year treasury yield ranged sideways before finishing down 1 basis point at 2.59%. The 2-year bond yield fell  2 basis points, to 1.25%.

Fed hawk Lacker (who is a voter in 2018) commented that more than three hikes may be needed in 2017.

Foreign Exchange: 

The US dollar index (weighted against a basket of currencies) drifted lower on Friday.

The US dollar weakened against the Yen on reports China had seized a US drone. USD/JPY fell abruptly from 118.43 to 117.47, then partially recovered to trade around 117.96 at the time of writing.

The Euro edged higher, with EUR/USD ranging between 1.0400 and 1.0475.

Increased risk aversion weighed on the Aussie dollar. AUD/USD fell from 0.7369 to a six-month low of 0.7266 but managed to recover to 0.7300 near the close.

Concerns today's mid-year economic and fiscal outlook (the MYEFO) could to lead to a downgrade of Australia's AAA sovereign debt rating may also have weighed on the currency.

NZD/USD similarly fell from 0.7050 to a six month-low of 0.6931.

Commodities:

The copper price fell after two days of gains, on rising copper inventories and concerns about demand from China.

Australia:

There was no major economic data released on Friday.

Europe:

CPI inflation fell by 0.1% in November, in line with consensus forecasts. For the year to November, CPI inflation rose by 0.6%, up from 0.5% in the year to October.

Core CPI rose by 0.8% in November. It has held at this annual pace for four consecutive months.

New Zealand:

Consumer confidence fell to 124.5 in December, from 127.2 in November, according to the ANZ measure.

United States: 

Housing starts were weaker than expected, falling from a nine-year high reached in October. In November, housing starts fell by 18.7%, following an upwardly revised increase of 27.4% in October.

Building permits were also undershot consensus expectations, falling by 4.7% in November, after rising by 2.9% in October.

Permits for single-family homes, however, rose to a nine-year high in November.



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