By Ian Dobbs*:
The U.S. dollar has once again dominated this week pushing the EUR, GBP and AUD among others close to recent lows.
Shocking Chinese trade data saw commodity currencies in general under pressure yesterday after both imports and exports posted sharp declines.
In Europe the focus remains on Greece and deterioration of relations between the country and its creditors. The next few months are going to prove very difficult for the Euro in this current environment.
Major Announcements last week:
- US Non-manufacturing PMI 56.5 as expected
- Canadian Ivey PMI 56.0 vs 50.8 previous
- Australian Retail Sales .7% vs .4% expected
- RBA leave monetary policy unchanged
- UK Services PMI 58.9 vs 57.0 expected
- BOJ leave monetary policy unchanged
- BOE leave monetary policy unchanged
- UK Industrial Production .1% vs .4% expected
- Canadian Unemployment rate 6.8% as expected
NZD/USD
The New Zealand dollar spent much of the past week ranging between 0.7500 and 0.7600 to the U.S dollar. The currency finally saw some real direction yesterday in the wake of shocking Chinese trade data. Sharp falls in both imports and exports spooked the market and saw commodity currencies in general come under pressure. This NZD fell down through 0.7500 and traded as low as 0.7422 before the immediate pressure eased. Whether or not we see further downside price action below support around 0.7400 will largely depend on the outcome of U.S. retail sales data tonight and then Fonterra’s dairy auction tomorrow night. Toward the end of the week U.S. inflation and consumer sentiment data will also draw attention.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / USD | 0.7462 | 0.7400 | 0.7600 | 0.7422 - 0.7605 |
NZD/AUD (AUD/NZD)
This pair has traded in a very tight range over the past week between the broad parameters of 0.9800 and 0.9850 (1.0150 - 1.0205) Last Tuesday’s decision by the RBA to leave interest rates unchanged was the catalyst for a pullback to 0.9800 (1.0205) and with little in the way of market moving data released from either country since then, this tight range has developed. Key to direction over the coming week will be the result of Fonterra’s latest dairy auction tomorrow night and the release of Australian employment data on Thursday afternoon. Current levels continue to provide good value for those looking to buy Australian dollars, and although another test toward parity may well eventuate over the coming weeks, it is by no means definite. The cross could just as easily trade back to 0.9500 (1.0525) as it could to 1.0000.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / AUD | 0.9810 | 0.9800 | 1.0000 | 0.9788 - 0.9934 |
| AUD / NZD | 1.0194 | 1.0000 | 1.0204 | 1.0066 - 1.0216 |
NZD/GBP (GBP/NZD)
Disappointing manufacturing and construction data along with uncertainty about the outcome of the general election on May 7th kept the UK Pound under pressure for much of the past week. This helped drive the pair up to its 0.5159 high (low 1.9384). In the past 24 hours however, we have seen a sharp pullback in the NZD. This was initiated by weakness in the New Zealand dollar in the wake of yesterday’s poor Chinese trade data, but overnight the latest UK poll has the Conservatives opening a small lead and the Pound reacted positively. With a long way still to go before the UK elections we can expect plenty of volatility on the back of further poll results. Selling NZD into periods of strength toward, or above 0.5150 (below 1.9420), remains the favoured play. I still feel 0.5200 (1.9230) will keep a cap on any periods of NZD strength, unless we see a big swing in favour of a Labour - SNP coalition. That sort of result would heap pressure the GBP and all bets would be off. This week from NZ we have another dairy auction from Fonterra to digest, while from the UK we have inflation and employment data to draw focus.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / GBP | 0.5090 | 0.5000 | 0.5200 | 0.5048 - 0.5159 |
| GBP / NZD | 1.9646 | 1.9231 | 2.0000 | 1.9485 - 1.9811 |
NZD/CAD
The New Zealand dollar saw consistent gains against the Canadian dollar throughout much of last week, but a sharp turnaround ensued on Friday evening. This was triggered by the release of better than expected Canadian employment data which boosted demand for the CAD. The pair then lost further ground yesterday in the wake of poor Chinese trade balance data which weighed on the NZD. This helped drive the pair down to support around 0.9360 which has so far contained the downside. Direction from here will largely depend on the outcome of a number of key releases from both countries over the coming days. From NZ we have the latest Fonterra dairy auction to digest, while from Canada we get manufacturing sales, inflation, retail sales and the Bank of Canada monetary policy report.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / CAD | 0.9395 | 0.9350 | 0.9550 | 0.9358 - 0.9555 |
NZD/EURO (EURO/NZD)
Uncertainty around the Greek situation has kept pressure on the Euro and this helped to drive the NZDEUR cross up to a 0.7121 high (1.4043 low) in recent days. We did get a sharp pullback from that level yesterday driven by weakness in the New Zealand dollar in the wake of yesterday’s poor Chinese trade data, but the NZD found support around 0.7025 (1.4235). At this stage is getting very hard to see any meaningful resolution to Greece’s financial situation, even if the current tranche of 7.2bln bailout funds released. This will continue to weigh on the Euro in the weeks, and potentially months, ahead. The immediate focus now turns to tomorrow night’s dairy auction from Fonterra, and the ECB’s rate meeting. There is a fair amount of support toward 0.7000 (resistance 1.4285) and as long as the market holds above there the focus remains on the New Zealand dollar topside.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / EUR | 0.7060 | 0.7000 | 0.7200 | 0.6874 - 0.7121 |
| EUR / NZD | 1.4164 | 1.3889 | 1.4286 | 1.4044 - 1.4547 |
NZD/YEN
For much of last week the New Zealand dollar saw grinding appreciation over the Japanese Yen. The cross traded up to 91.52 before pulling back slightly heading into the weekend. That pullback has extended significantly in the past 24 hours thanks to weakness in the NZD and comments from a Japanese official. The NZD saw pressure yesterday in the wake of very poor Chinese trade balance data. Then last night the Yen saw increased demand after an advisor to MP Abe suggested the appropriate rate to the USD would be around 105, not above 120 where it was. Taking a look at the longer term picture we see that the pair has been ranging sideways between the broad parameters of 88.00 and 92.00 for much of the past two months. Nothing this week has suggested we will see a break out of that range.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / YEN | 89.51 | 88.00 | 92.00 | 89.14 - 91.52 |
AUD/USD
The Australian dollar has given up all the gains made in the wake of last Tuesday’s decision by the RBA to keep rates on hold. The AUD traded as high as 0.7737 on Thursday evening, but then drifted lower heading into the weekend. The currency then gave up significant ground yesterday in the wake of shocking Chinese trade data. Sharp falls in both imports and exports spooked the market and saw commodity currencies in general come under pressure. The AUD broke back below 0.7600 touching a 0.7554 lower overnight. If further downside is to be avoided the pair needs to recover back above 0.7600, something it has just managed in the past hour. Attention now turns to tonight’s release of U.S. retail sales data which could easily influence. Toward the end of the week U.S. inflation and consumer sentiment data will also draw attention. While from Australia this week the highlight will be employment change figures on Thursday.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / USD | 0.7616 | 0.7500 | 0.7700 | 0.7554 - 0.7737 |
AUD/GBP (GBP/AUD)
Disappointing manufacturing and construction data, coupled with uncertainty about the outcome of the general election on May 7th, kept the UK Pound under pressure for much of the past week. This helped to dive the cross up to its 0.5252 high (1.9040 low). A sharp AUD pullback from that level has developed in the past 24 hours, initially triggered by very poor Chinese trade balance data. This weighed heavily on the Australian dollar. Last night we also saw a poll of UK voters that showed the Conservatives opening a small lead and this helped the GBP regain some composure. Initial support comes in around 0.5150 (resistance 1.9420) and as long as the market holds above there the risks are skewed to the AUD upside. We have key employment data from both countries set for release this week, while from the UK we also get inflation data tonight.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / GBP | 0.5190 | 0.5100 | 0.5300 | 0.5090 - 0.5252 |
| GBP / AUD | 1.9268 | 1.8868 | 1.9608 | 1.9040 - 1.9646 |
AUD/EURO (EURO/AUD)
Uncertainty around the Greek situation has kept pressure on the Euro and this helped to drive the cross up to a 0.7254 high (low 1.3785) at the end of last week. We did get a sharp AUD pullback from that level yesterday. This was driven by weakness in the Australian dollar in the wake of yesterday’s poor Chinese trade data, but the pair found support around 0.7150 (resistance 1.3986). At this stage is getting very hard to see any meaningful resolution to Greece’s financial situation, even if the current tranche of 7.2bln bailout funds released. This will continue to weigh on the Euro in the weeks, and potentially months, ahead. There are two key releases that could drive prices this week. On Wednesday night we have the ECB rate meeting and subsequent press conference, then on Thursday we have Australian employment data. If the market can hold above 0.7150 (below 1.3986) the risks will remain skewed toward further gains. A move below 0.7150 (above 1.3986) will open the way for a deeper correction that should target 0.7025 (1.4235).
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / EUR | 0.7205 | 0.7050 | 0.7250 | 0.6929 - 0.7254 |
| EUR / AUD | 1.3879 | 1.3793 | 1.4184 | 1.3786 - 1.4432 |
AUD/YEN
For much of last week the Australian dollar saw grinding appreciation over the Japanese Yen. The gains were triggered by the RBA decision to leave interest rates unchanged and the pair eventually traded up to 93.05, before pulling back slightly heading into the weekend. That pullback has extended significantly in the past 24 hours thanks to weakness in the AUD and comments from a Japanese official. The AUD saw pressure yesterday in the wake of very poor Chinese trade balance data. Then last night the Yen saw increased demand after an advisor to MP Abe suggested the appropriate rate to the USD would be around 105, not above 120 where is was actually trading. The AUDJPY cross fell all the way to 91.00 before finding support. I suspect we may now see a recovery back to at least 91.80. Key data this week to watch will be Australian employment numbers on Thursday.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / YEN | 91.28 | 91.00 | 93.00 | 90.56 - 93.05 |
AUD/CAD
This pair rallied strongly in the wake of last Tuesday’s RBA decision to leave rates unchanged, trading up just over 0.9700. A sharp turnaround ensued on Friday evening however, triggered by the release of better than expected Canadian employment data which boosted demand for the CAD. The pair then lost further ground yesterday in the wake of poor Chinese trade balance data, which weighed heavily on the Australian dollar. We can expect further volatility this week with a number of key releases from both countries. From Australia we have employment data on Thursday to digest, while from Canada we get manufacturing sales, inflation, retail sales and the Bank of Canada monetary policy report.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / CAD | 0.9577 | 0.9500 | 0.9700 | 0.9458 - 0.9713 |
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Market commentary:
The U.S. dollar has once again dominated this week pushing the EUR, GBP and AUD among others close to recent lows. Shocking Chinese trade data saw commodity currencies in general under pressure yesterday after both imports and exports posted sharp declines. In Europe the focus remains on Greece and deterioration of relations between the country and its creditors. The next few months are going to prove very difficult for the Euro in this current environment.
Australia
There has been little economic data of consequence released from Australia since the Reserve Bank of Australia (RBA) decided to keep rates on hold last Tuesday. The Australian dollar has moved back toward recent lows in the wake of yesterday’s Chinese trade balance figures. The trade balance was a huge miss on expectations with both imports and exports falling sharply. Chinese officials are trying to blame the timing of Lunar New Year, but the market is less than convinced. This data raises some real concerns about domestic demand in China while also suggesting global demand may not be a strong as thought. Today from Australia we have business confidence data set for release and this will be followed tomorrow by consumer sentiment. The highlight of the week will be Thursday’s employment change data. The market is looking for a gain in employment of around 15k.
New Zealand
The past week has been a very quiet one on the economic data front for New Zealand. Until this morning, the only release of note had been electronic card spending which isn’t a big market mover. However, the data did show that consumers a feeling pretty confident, obviously buoyed by lower petrol costs, low mortgage rates and increasing house prices. Retail card spending increased 0.8% in March following a 1.1% rise in February. In the past few hours we have seen NZIER business confidence data show static business confidence levels with the index at 23. The only other news related to the government’s finances. It looks like the chance of the government posting a surplus when their final accounts are released in October has declined significantly. Finance minister Bill English released a statement last week saying “low inflation, while good for consumers, is making it less likely that the final accounts in October will show a surplus for the whole year.” Still to come this week we have another dairy auction from Fonterra along with the Business NZ manufacturing index.
United States
The Fed minutes released last Thursday morning certainly showed there is a range of views on when interest rates should start rising in the U.S. Since then we’ve had comments from a number of officials which have only served to highlight the disparities. The Fed’s Lacker said he saw “a pretty substantial amount” of support for a June hike, while Kocherlakota repeated he believes the Fed should delay hiking until the second half of 2016. The Fed’s Williams said that the US still needs accommodative policy right now, but as the economy nears its goals the case weakens for keeping rates low. He believes the U.S. will be at full employment in 6-12 months. We have some key data to digest this week. Tomorrow sees the release of retail sales, then later in the week we get industrial production, building permits, inflation and consumer sentiment.
Europe
The Euro has remained under pressure the past week weighed on by the Greek situation that is never far from the headlines. The Financial Times published an article saying Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with is international creditors by the end of April. This was quickly denied by Greek officials. EUR 7.2bn of bailout funds that was due to be disbursed last year has been held back amid disagreements between the new Syriza government and its EU and IMF creditors. Relations between the two side have deteriorated so badly that a Greek exit may be inevitable. Even if these bailout funds are released most analysts believe Greece will need a new bailout package of around EUR 30bn to get through the rest of the year. There is going to be very little political will to lend any further funds if the past couple of months are anything to go by. The highlight of this week’s economic calendar will be the European Central Bank rate meeting on Wednesday night.
United Kingdom
Late last week we saw some second tier data come in softer than forecast, which hasn’t helped the UK Pound at all. Disappointing manufacturing and construction data has only served to weight o the Pound has been under some pressure on the back of uncertainty about the outcome of the general election on May 7th. It’s a very tight race and with polls showing increasing support for the Scottish National Party (SNP), a Labour - SNP coalition is a very real possibility. That would be a bad result for the markets and likely see the GBP lose a lot more ground. George Osborne was clear on his views over weekend when he said a Labour - SNP coalition would “trash the economy” and “undermine economic security.” Tonight should prove very interesting with inflation data set for release. There is a very real risk that falling energy costs and a supermarket price war could see inflation below zero for the first time since 1960. It’s going to be close call between 0.0% or -0.1% for the CPI. Later in the week we have employment data to draw focus.
Japan
Yesterday from Japan we saw core machinery orders and producer prices data both print a little better than expected. However, the market impact was limited. The BOJ minutes were also released, but they held nothing new for the market. The BOJ quarterly report was also released and it suggested the regional economies are recovering moderately. The report raised its assessment for three of the nine regions and maintained its assessment for the other six. The biggest market impact came from comments last night by Koichi Hamada, an advisor to PM Abe. He said the Yen at 105.0 to the USD was appropriate on the basis of purchasing parity, and that 120.0 was weak for the Yen. This saw the Yen quickly gain some ground against the USD. The rest of the week looks pretty light in terms of data with only revised industrial production and consumer confidence figures set for release.
Canada
Canadian employment data at the end of last week provided something of a pleasant surprise. Canada added 28.7k jobs in March which was better than the forecast for a flat reading. The unemployment rate also remained steady at 6.8% versus expectations of a tick up to 6.9%. Tempering the positive impact of the report was the breakdown between full and part time employment. Full time jobs actually declined by -28.2k on the month while part time employment jumped +56.8k. This week should prove very interesting with a number of key releases. On Wednesday night we have the Bank of Canada (BOC) monetary policy report. No change in interest rates is expected at this meeting, but we may well get an indication of whether another cut could come later in the year. Governor Poloz has described the first quarter of 2015 as “atrocious” and lot of attention will be paid to how quickly the BOC expects the economy to bounce back from the oil shock. Other releases to watch out for this week include manufacturing sales, inflation and retail sales.
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Ian Dobbs is a currency analyst with Direct FX You can contact him here »
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