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Big moves in some currency pairs over past week has NZ$ revisiting its recent lows against most majors

Currencies
Big moves in some currency pairs over past week has NZ$ revisiting its recent lows against most majors
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By Sam Coxhead*:

The end of last week saw the market keenly awaiting the US employment report.

Overall it was slightly better than forecast and this has helped to support the US dollar.

Expectations for the Federal Reserve to start winding back asset purchases are now well cemented for the second half of this year.

With this factored into the market, continued gains for the USD should prove harder to make. Globally, central banks remain on hold with no change in rates last week from the Bank of England, the European Central Bank, or the Reserve Bank of Australia.

This week should see similar results from the Bank of Japan and the Reserve Bank of New Zealand. Volatility looks like it’s here to stay, with big moves in some currency pairs over past week.

Major Announcements last week:

·  US ISM manufacturing  49.0 vs 50.7 expected

·  RBA rate decision unchanged

·  Australian GDP 2.5% vs 2.7 expected

·  Euro-zone GDP -1.1% vs -1.0% expected

·  BOE rate decision unchanged

·  ECB rate decision unchanged

·  US non-farm payrolls 175k vs 163k expected.

NZD/USD 

Better than expected US employment numbers on Friday saw an increased demand for USD’s and as a result the NZD suffered closing the week on its lows. Monday saw lighter trading conditions but a heavy AUD helped to drag the NZD to fresh lows of 0.7837. A small recovery from there eventuated and the pair traded back above 0.7900, but has turned south again. Whilst the pair trades under key resistance around 0.8000, the downside is still the focus. If support at 0.7815 gives way we can expect further weakness. A move back above 0.8000 would be the first signal that the downside action is done for now and a broader correction higher could be underway. In focus this week is the RBNZ rate decision, although it shouldn’t hold any major surprises with rates expected to remain unchanged.

DIRECT FX Current level Support Resistance Last wk range
NZD / USD 0.0.7878 0.7815 0.8015 0.7837 - 0.8103

NZD/AUD (AUD/NZD)

The NZDAUD currently seems content to trade sideways between 0.8300 (1.2048) and 0.8400 (1.1905). Expect more of the same this week with the risks skewed toward further upside action, as long at the pair continues to hold above key support at 0.8260 (1.2107). Below that level and the outlook will quickly change with a deeper pullback likely. Although the RBNZ rate decision shouldn’t hold many surprises this week, we could get some volatility from Australian data, particularly employment numbers on Thursday.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.8371 0.8260 0.8460 0.8264 - 0.8396
AUD / NZD 1.1946 1.2107 1.1820 1.1910 - 1.2101

NZD/GBP (GBP/NZD)

The recent run of better data out of the UK has seen the value of the New Zealand dollar versus the Pound Sterling remain under pressure. Expected support around 0.5050 (1.9802) emerged on a test of that level yesterday and has so far contained the downside.  Further losses should prove harder going for now as the pair looks to consolidate its recent move. I expect a range of 0.5050 -0.5250 (1.9802 - 1.9047) to contain trading for much of this week. A sustained move below 0.5050 (above 1.9802), would be a very weak signal and warn of further losses to come. UK employment data will be closely watched this week as will an estimate of May GDP. For NZ the focus will be on the RBNZ rate decision, with an expected no change outcome on Thursday.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5062 0.5050 0.5250 0.5042 - 0.5291
GBP / NZD 1.9755 1.9802 1.9047 1.8900 - 1.9833

 NZD/CAD

For most of last week the CAD outperformed the NZD as the pair ground lower in choppy trade. Friday’s release of Canadian employment was a big surprise to the market showing one of the strongest monthly gains on record. This saw a dramatic increase in demand for Canadian dollars and the cross rate collapsed from 0.8150 to trade below 0.8000. Those employment numbers come on the back of other strong Canadian data last week, and should result in continued support for the CAD going forward. There is support for the pair around 0.7970 which might contain the downside for now, but further tests lower are likely. I would expect resistance around 0.8100 to cap any upside action in the near future.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8037 0.7970 0.8110 0.7993 - 0.8324

NZD/EURO (EURO/NZD)

The New Zealand dollar versus the EUR exchange rate remains entrenched in a downtrend that saw lows of 0.5932 (1.6858) trade yesterday. A small recovery since then has failed to gain much momentum and never even tested the first line of resistance. This leaves the picture looking very soft for the pair with a test of support at 0.5900 (1.6950) expected. Better data out of Germany on Friday has helped to increase demand for the EUR which should remain supported ahead of inflation data and the ECB monthly report out later this week. Initial resistance is at 0.5990 (1.6694) and it will take a move above there to relieve some of the downside pressure.

DIRECT FX Current level Support Resistance Last wk range
NZD / EUR 0.5945 0.5900 0.6060 0.5932 - 0.6201
EUR / NZD 1.6821 1.6949 1.6502 1.6126 - 1.6858

 NZD/YEN

A combination of weakness in the New Zealand dollar and strength in the Japanese Yen saw this pair lose a lot of ground last week. At one point the cross was down over 6% in just a few days. The start of this week has seen a bounce from its lows and the pair now trades back over 78.00. The only thing that is certain is that we will continue to get more volatility in this cross. With rate decisions from both the BOJ and RBNZ this week there is plenty of potential for further large moves.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 77.75 76.00 79.00 75.83 - 80.74

AUD/USD

The Australian dollar suffered last week as continued selling was supported by soft economic data. Over the weekend there was a raft of weaker Chinese data that has also weighed on the AUD. It started this week making fresh lows just under 0.9400. Trying to pick a bottom or turning point of a strong downtrend like this is never a good idea. There are however some indicators that can point to an increased risk of a reversal. Recent data released on speculative short (sold) positions in the AUD show they are at a historical extreme. What this tells us is that any speculative players who want to sell the AUD have already done so. The downside should now be harder going for the currency, and there is an increased risk of a sharp reversal. Any such reversal will need a trigger. Whether this week’s data in the form of business confidence, consumer confidence, or employment numbers, will be that trigger, remains to be seen.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.9427 0.9400 0.9600 0.9397 - 0.9756

AUD/GBP (GBP/AUD)                            

The Australian dollar suffered last week as continued selling was supported by soft economic data. Over the weekend there was a raft of weaker Chinese data that has also weighed on the AUD. It started this week making fresh lows just under 0.9400. Trying to pick a bottom or turning point of a strong downtrend like this is never a good idea. There are however some indicators that can point to an increased risk of a reversal. Recent data released on speculative short (sold) positions in the AUD show they are at a historical extreme. What this tells us is that any speculative players who want to sell the AUD have already done so. The downside should now be harder going for the currency, and there is an increased risk of a sharp reversal. Any such reversal will need a trigger. Whether this week’s data in the form of business confidence, consumer confidence, or employment numbers, will be that trigger, remains to be seen.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.6050 0.5935 0.6135 0.6049 - 0.6357
GBP / AUD 1.6529 1.6850 1.6300 1.5730 - 1.6530

AUD/EURO (EURO/AUD)

Soft data out of China over the weekend hasn’t helped the Australian dollar which has continued to lose ground against the EUR. Good German data on Friday also saw increased demand for EUR and the pair is currently trading on it’s lows. The downtrend seems to have plenty of momentum at the moment and further losses look likely. Data out of Australia this week could try to turn it around, but for the time being I wouldn’t want to be going against the trend. Only a move up through 0.7190 (1.3908) will take the immediate focus off the downside.

DIRECT FX Current level Support Resistance Last wk range
AUD / EUR 0.7109 0.6990 0.7190 0.7109 - 0.7449
EUR / AUD 1.4066 1.4306 1.3908 1.3425 - 1.4066

AUD/YEN

After a major bout of JPY strength late last week this pair traded to a low of 90.55. Although the Australian dollar has remained soft, the JPY has given back much of it’s gains and the cross has recovered to trade back up over 93.00. As I write this, another round of AUD selling seems to be taking place and the AUDJPY is turning back down. The only safe bet is for more volatility, with more downside action the immediate focus. This week sees the BOJ rate decision and Australian employment data to help keep things lively.

DIRECT FX Current level Support Resistance Last wk range
AUD / YEN 92.62 90.50 93.50 90.55 - 97.20

AUD/CAD

Like most of the Australian dollar pairs the AUDCAD has been heading lower as the outlook for Australia continues to soften. This move accelerated on Friday after the release of Canadian employment numbers that showed stellar gains. The jump in demand for Canadian dollars saw the AUDCAD collapse from 0.9750 all the way to 0.9600. Soft Chinese data over the weekend has helped to push the AUD lower again and the pair now trades around 0.9585. With little out in Canada this week it will be up to the AUD to try and turn things around. There is key Australian employment data on Thursday and a positive surprise could spark a decent correction. Until then however, further weakness is likely.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9600 0.9520 0.9720 0.9576 - 1.0116

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Market commentary:

The end of last week saw the market keenly awaiting the US employment report. Overall it was slightly better than forecast and this has helped to support the US dollar. Expectations for the Federal Reserve to start winding back asset purchases are now well cemented for the second half of this year. With this factored into the market, continued gains for the USD should prove harder to make. Globally, central banks remain on hold with no change in rates last week from the Bank of England, the European Central Bank, or the Reserve Bank of Australia. This week should see similar results from the Bank of Japan and the Reserve Bank of New Zealand. Volatility looks like it’s here to stay, with big moves in some currency pairs over past week.

Australia

The Australian dollar has had a terrible time of it lately with selling pressure being unrelenting. This selling has been driven by a softening domestic economy combined with a slowdown of growth in China. Data out over the weekend from China has only served to reinforce that view. Chinese industrial production, property investment and export data all missed expectation. This has weighed on the AUD as has a slightly better than expected US employment report released on Friday. This week however could be an interesting one for the currency. With business and consumer confidence set for release ahead of employment data on Thursday, there is potential for better numbers to trigger a decent squeeze higher. More soft data however, will likely see fresh lows tested.

New Zealand

The New Zealand dollar started the week on fresh lows after US employment data came in a little stronger than expected. This helped increase demand for USD’s across the board. A heavy AUD has also weighed on the NZD. This week we get readings on retail sales and manufacturing index, although the highlight will be the Reserve Bank’s policy meeting on Thursday. The overwhelming consensus is for no change in the cash rate. But what will be closely watched is the banks projected path for rates. The bank currently forecasts a hike in interest rate in the second half of 2014. If this projected hike is brought forward, due to property market concerns,  it will attract some buyers to the currency.

United States

The focus for the markets late last week was on US employment numbers. They came in a little better than forecast and that has raised the likelihood of the Fed starting to taper their quantitative easing programme over the coming months. This encouraged more buying of USD’s and saw long term interest rates rise.  There is a wide consensus now that asset purchases will be scaled back in the second half of this year, and be stopped altogether by mid 2014. Although this will continue to support the USD, with the consensus view now factored into the market the broad based gains of the last month, will be harder to come by. This week’s economic calendar is a little lighter in the US with the focus being on retail sales and consumer confidence.

Europe

The EURO has remained well supported since ECB’s head Draghi’s comments last week, that further stimulus measures are on the shelf for now. EURO buying was aided by German industrial production and trade balance figures on Friday that were both positive surprises. This week shouldn’t see much to change that trend with the only key releases being inflation and the ECB monthly report. The IMF recently released a report reviewing the Greek crisis in which it admitted it massively underestimated the toll austerity would have on the Greek economy. This comes on the heels of a recent article suggesting Germany is reconsidering its hard-line approach to austerity in troubled countries. This can only be positive for Europe that desperately needs growth policies to really turn things around.

United Kingdom

The UK’s recent run of better data was supported by another release on Friday. Trade balance data beat expectations and showed a solid improvement. While it didn’t have a huge impact on the currency, it does lend support to the outlook for a very robust second quarter GDP figure. This is serving to underpin demand for the GBP which is recovering a good portion of the ground it lost earlier this year. There is more data out this week that will hopefully confirm the improving outlook. Industrial and manufacturing production numbers are released on Tuesday ahead of an estimate for May GDP and employment data later in the week.

Japan

This week has started on a positive note for Japan with the release of first quarter GDP figures. They came in substantially stronger than expected and have helped the Japanese stock market recover some of the losses of the past week. Figures like this are certainly helping to build confidence in the measures taken by the government and Bank of Japan to beat deflation. Volatility in financial markets is still a big concern though, and one the BOJ might address at their policy meeting on Tuesday. They are widely expected to leave monetary policy on hold, but after recent wild swings in government bonds the markets are expecting some measures to try and reduce volatility. Other releases of note this week include consumer confidence and minutes from the May BOJ meeting.

Canada

Canada had some strong economic numbers out last week that really helped to support the CAD. The biggest of these was employment data released on Friday. It showed the biggest monthly gain in 10 years and far outperformed any expectations. The details of the report were uniformly impressive and it was only just shy of being the biggest gain since records began. This saw a material increase in demand for Canadian dollars. The currency found even more support after the new Bank of Canada governor Stephen Poloz reiterated his predecessors view that interest rates will rise as the economy grows. The focus for the week ahead will be on housing data and the release of the Bank of Canada’s semi-annual financial system review. That review previously sighted mounting consumer debt as the biggest risk.

No chart with that title exists.

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Sam Coxhead is a currency analyst with Direct FX You can contact him here »

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1 Comments

Thanks for an informative artical. I am trying to pick the right time to buy in a shippment in USD. Shall I wait it out a couple of weeks, or .. just take the hit?  Not that you have all the answers but it would be interesting to know your point of view.

Thanks Stephie

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