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Double whammy of positive data behind rise in USD index; European currencies casualty of USD strength; disappointing Chinese data puts pressure on AUD & NZD

Currencies
Double whammy of positive data behind rise in USD index; European currencies casualty of USD strength; disappointing Chinese data puts pressure on AUD & NZD

By Kymberly Martin

Most currencies weakened against a strong USD on Friday, although the JPY managed to hold its own.

On Friday night, a steady uptrend in the USD gained a further boost from US data releases. The double-whammy of stronger-than-expected retail sales and University of Michigan consumer confidence data saw the USD index trade up above 94.60. This is now more than 3% above its early-May lows.

European currencies were obvious casualties of USD strength, but the JPY managed to recover after an initial fall. The USD/JPY closed for the week at 108.60.

The NZD and AUD were both on a fairly steady descent for most of Friday. The fall in the NZD/USD was hastened by the strong US retail sales report. It ended the week below 0.6780, toward the lower-end of its range of the past month.

Downward pressure on the AUD and NZD will likely remain at the start of this week after disappointing China data releases over the weekend. China industrial production, retail sales and fixed asset data all printed below consensus expectation.

Initial support for the NZD/USD is likely to be found at last week’s lows below 0.6720. Below this, the 200-day moving average, at 0.6648 comes into view.

On the crosses, the NZD/AUD ended the week higher, at 0.9310. This is its highest close since late-February. Our forecasts now see this cross trading in the low-90s through to year-end.

However, short-term moves will remain highly influenced by the market’s cash rate expectations on either side of the Tasman. Currently the market prices a trough in the RBA and RBNZ’s cash rates at 1.35% and 1.87% respectively. We see potential for some convergence in these views.

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