By Ian Dobbs*:
Over the last week the dual influences of aligned messages from Federal Reserve Board members, and the apparent swing toward a no vote at the “Brexit” have provided the lead for markets.
Not seen in recent times, the orchestrated and aligned message from the Fed has seen the June monetary policy meeting come very much back on the table as a prospect for a lift in rates.
US employment numbers this Friday will likely be the most pivotal release heading into the coming June FOMC meeting.
USD volatility is therefore likely to remain high this week. In the UK the polls show that divergent views on EU membership remain, although there has been a material swing recently in favour of a status quo outcome in the UK referendum on the issue. Unsurprisingly this has led to a materially stronger GBP, albeit it sitting off its highs in current trade.
Major Announcements last week:
- Japanese Merchandise Trade Balance, 823.5 B Yen vs. 492.8 B Yen exp. (April)
- Eurozone Preliminary Composite PMI 52.9 vs 53.2 exp. (May)
- US Preliminary Composite PMI 50.8 vs 52.4 prior (May)
- Eurozone ZEW Economic Sentiment Survey 16.8 vs 23.4 exp. (May)
- US New Home Sales .619m m/m vs .523m exp. (April)
- NZ Trade balance $292M m/m vs $60M exp. (April)
- Bank of Canada leave monetary policy unchanged as exp. (0.5%)
- US Durable Good Orders 3.4% vs .5% exp. (April)
- UK Preliminary Q1 GDP, 0.4% q/q as exp.
- Australian Q1 Private Capex, -5.2% vs. -3.0% exp.
- US Preliminary Q1 GDP, 0.6% vs. 0.7% exp.
NZD/USD
Sentiment towards the NZD remains cautious in trade so far this week. Comments from US Fed officials continue to support the USD in recent trade and again it looks likely that USD sentiment will be the dominant driver during the week, especially with the non-farm payrolls report on Friday- being so pivotal to the coming June FOMC rate decision. Local items of interest include today’s ANZ Business confidence survey and the next in the GDT dairy auction series with the latter being in particular focus after Fonterra’s low 2016/17 season price forecast last week. We favour selling rallies for now towards .6750, support beyond .6660 is pegged around .6550.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / USD | 0.6715 | 0.6660 | 0.6780 | 0.6677 - 0.6772 |
NZD/AUD (AUD/NZD)
The New Zealand dollar is trading with a mildly soft tone in current trade against the Australian dollar. Attempts to push beyond resistance just above .9400 (below 1.0638) have so far failed on this NZD upswing. Fonterra’s 2016/17 payout forecasts last week have increased focus on the vulnerabilities of the NZ economy and come prior to what could be a busy week for the cross this week. Australian events look set to dominate proceedings and start with building approvals and private sector credit data this afternoon. The largest impact is likely to come from the later GDP and retail sales releases, although an eye should also be kept out for the NZ GDT dairy auction results.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / AUD | 0.9332 | 0.9250 | 0.9415 | 0.9305 - 0.9406 |
| AUD / NZD | 1.0716 | 1.0621 | 1.0811 | 1.0632 - 1.0747 |
NZD/GBP (GBP/NZD)
The New Zealand dollar continues to trade with a weak tone against the UK pound in current trade. Downtrend resistance points to rallies faltering in the .4600/.4625 zone (support 2.1739/2.1622), although shifts in the Brexit polling in coming days and weeks increase the vulnerability of support and resistance holds. We cautiously favour selling NZ dollar rallies at present and would be surprised if the economic data from either country this week is the forbearer of any meaningful reversal.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / GBP | 0.4581 | 0.4540 | 0.4610 | 0.4546 - 0.4657 |
| GBP / NZD | 2.1827 | 2.1692 | 2.2026 | 2.1474 - 2.1999 |
NZD/CAD
The New Zealand dollar has tracked largely sideways against the Canadian dollar since our report on Friday. There has been little to go on for this cross over the weekend and yesterday meaning any move after last week’s decline has been muted. Events of interest this week are the Canadian GDP print for March and the next in the GDT dairy price auction series. We favour the downside for this cross, although while support around .8700 holds potential for better entry levels nearer .8800 and perhaps as high as .8880 exist.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / CAD | 0.8759 | 0.8700 | 0.8930 | 0.8696 - 0.8880 |
NZD/EURO (EURO/NZD)
The New Zealand dollar continues to trade in holding pattern against the Euro in present trade. The ECB meeting on Thursday looks set as the most likely event to break the lateral price action of late, although in reality the wider range looks set to remain in place (.5800/.6200), (1.7241/1.6129). Expect the door to be left open by the ECB for further easing later in the year and a dovish tone to be maintained which should mean the cross will remain within the first support/resistance levels. We lack any bias on the next move from here for the time being.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / EUR | 0.6024 | 0.5900 | 0.6070 | 0.5984 - 0.6073 |
| EUR / NZD | 1.6598 | 1.6474 | 1.6949 | 1.6467 - 1.6711 |
NZD/YEN
The New Zealand dollar remains in a consolidation pattern against the Japanese Yen in current trade. JPY weakness in recent days has come at a time of similar weakness in the NZD as the USD has benefitted across the board from improved US rate sentiment. This weakness when combined with the lack of communal support for intervention means that perceived JPY pressure coming from any potential BOJ action will be much reduced at current levels. This has us favouring a mild sell bias when combined with the current soft NZD sentiment. Local data events look unlikely to break the shackles this week.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / YEN | 73.80 | 72.50 | 74.90 | 73.30 - 74.63 |
AUD/USD
The Australian dollar continues to trade with a weak tone against the USD in current trade. Positive USD sentiment remains a barrier to any recovery for the time being as US Fed officials continue to up the ante on the prospect of a US rate hike in coming months. This week is set to a pivotal one for the next leg. Support is pegged around .7140 whilst first real resistance lies above .7250. The complex wrap of data means we prefer not to have a view this week, although clearly for now the momentum is to the AUD downside. Events to watch in the US are dominated by the non-farm payrolls employment release on Friday whilst in Australia most volatility should be expected from the GDP and retail sales releases.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / USD | 0.7193 | 0.7140 | 0.7260 | 0.74147 - 0.7243 |
AUD/GBP (GBP/AUD)
ThThe Australian dollar continues to trade with a weak tone against the UK pound. Weak AUD support levels continue to break during the now six week long down-trend. This comes as the GBP continues to benefit from improved Brexit sentiment, whilst in comparison the AUD suffers from malaise over waning local inflation and increased perception of RBA rate cuts. Data of interest for the cross this week included the various PMI indicators out of the UK and Australian GDP and retail sales (amongst others.) Whilst momentum still remains to the downside, buyers of AUD would be wise to begin taking advantage of the large sell-off near current levels.e Australian dollar has managed to eke out further marginal gains against the UK pound since our report on Friday. The move comes on the back of falls in the GBP as BoE members struck cautionary comments on the UK economy during talks on Friday. The GBP proved to one of the few currencies to appreciate on the week against a USD which rose after more hawkish than expected US FOMC minutes. UK GDP numbers (Thursday) is the main data point for the cross this week. Momentum for the cross remains to the AUD downside, but this move lower looks extended to us.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / GBP | 0.4907 | 0.4840 | 0.5000 | 0.4872 -0.4985 |
| GBP / AUD | 2.0379 | 2.0000 | 2.0661 | 2.0062 - 2.0525 |
AUD/EURO (EURO/AUD)
The Australian dollar continues to remain entrapped within its range of the last 3+ weeks against the Euro in current trade. Chances of a break-out this week look higher than that seen for most of this month as the ECB convenes for its meeting on monetary policy and various Australian data releases of note hit the newswire (GDP, retails sales, building approvals, current account amongst others). We lack a view on the likely breakout which will be data or (perhaps more likely) central bank driven. Initial momentum prior to the recent consolidation period was to the AUD downside however.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / EUR | 0.6451 | 0.6390 | 0.6500 | 0.6391 - 0.6472 |
| EUR / AUD | 1.5500 | 1.5385 | 1.5649 | 1.5450 - 1.5647 |
AUD/YEN
The Australian dollar has lifted marginally against the Yen since our report on Friday, although current levels remain well within the ranges established during the last four weeks. These bounds (78.00/80.65) look to have the potential to again hold the cross this week, although Australian data (most so GDP and retail sales) offer the chance (remote) of a threat. A consolidated break either way should open significant movement in the direction of the break. US data (employment on Friday) could also incite a break if it has a lasting impact on the high yielders and risk/commodity sentiment.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / YEN | 79.74 | 78.00 | 80.65 | 78.31 - 79.91 |
AUD/CAD
The Australian dollar is largely unchanged against the Canadian dollar since our report on Friday. Events of note have lacked in the interim, although this looks set to change this afternoon with the release of Australian building approvals, current account and private sector credit data. GDP reports are also due from both countries this week, whilst Australian retail sales will also interest- but is likely to have a more transitory impact at best. Big picture momentum since early April focuses on the downside.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / CAD | 0.9381 | 0.9300 | 0.9515 | 0.9329- 0.9502 |
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Market commentary:
Over the last week the dual influences of aligned messages from Federal Reserve Board members, and the apparent swing toward a no vote at the “Brexit” have provided the lead for markets. Not seen in recent times, the orchestrated and aligned message from the Fed has seen the June monetary policy meeting come very much back on the table as a prospect for a lift in rates. US employment numbers this Friday will likely be the most pivotal release heading into the coming June FOMC meeting. USD volatility is therefore likely to remain high this week. In the UK the polls show that divergent views on EU membership remain, although there has been a material swing recently in favour of a status quo outcome in the UK referendum on the issue. Unsurprisingly this has led to a materially stronger GBP, albeit it sitting off its highs in current trade.
Australia
The AUD is trading with a soft tone in current trade in what is set to be a busy week on the event calendar. Recent trade has felt the pressure from a stronger USD which continued its advance on Friday after comments from US Fed chair Yellen which alluded to the appropriateness of rate rises in the coming months. Last week was quiet in Australia, events of note included a speech by RBA Governor Stevens which defended the inflation targeted approach to monetary policy and quashed calls to move the target (2-3%) in light of the low inflation environment. Q1 Private CAPEX numbers missed the forecast estimates on the back of the pull in mining investment, a theme which was also reflected in the spending intentions in the year ahead. The ABS Capex intentions survey indicated a further 35% slump in mining investment. Positives included a rise in dwelling construction in Q1 and improving non-mining capex plans from levels seen a year ago. Data released yesterday showed a fall in Q1 company profits and drop in HIA new home sales. Other releases this week include building approvals and private sector credit data today. Q1 GDP tomorrow will be followed by trade and retail data on Thursday.
New Zealand
A continued advance in the USD has seen the NZD remain on the back foot in trade this week. The latest pressure comes after comments from Fed Chair Janet Yellen on Friday which bolstered USD demand after she said that it’s appropriate for the Fed to gradually and cautiously increase its interest rate over time and that “probably in the coming months such a move would be appropriate”. Last week was a relatively quiet one in NZ that saw sellers take the upper hand after the 2016/17 Fonterra dairy payout forecast disappointed. The $4.25/KG payout was based on expectations of a minimal rebound in dairy prices, little change in production and reflected a stubbornly firm local currency. Trade data released earlier in the week surprised to the upside, whilst the NZ budget presented rosy forecasts for unemployment and GDP growth. Buildings consents numbers for April released this morning showed a large jump from the month prior. On the radar in NZ this week is the ANZ Business Confidence survey today, the next in the GDT dairy auction series, and the Q1 terms of trade numbers. Expect the key US employment data on Friday to dominate USD sentiment overall and set direction for the NZD into the end of the week.
United States
The USD rally extended after our report on Friday and followed comments from Fed chair Yellen which asserted that is likely to be appropriate to raise rates in coming months. This was a theme which was echoed by the Fed’s Bullard overnight. Data released last week was somewhat mixed. Data on the manufacturing industry showed a sector under pressure as the Markit PMI, Richmond and Kansas Fed indicators all posted sizeable declines on the month prior. A decline in the core durable goods numbers suggest that business fixed investment is also under pressure. The second read of the Q1 GDP was revised marginally lower on Friday, although the Atlanta Fed’s forecast for Q2 GDP was revised higher to 2.9% from 2.5% (annualized). Housing indicators continued to show solid activity in the housing market after both the new and pending home sales numbers jumped from the month prior. The housing price index also showed a decent lift in March beating the consensus expectations. This week is set to be a busy one on the US economic calendar which starts with consumer confidence and the Chicago PMI today. ISM manufacturing data is due later in the week and comes prior to the pivotal May employment numbers on Friday.
Europe
Holiday trade has ensured a quiet start for the EUR this week ahead of the key ECB meeting on Thursday. Hawkish comments on US rates from Fed chair Yellen on Friday ensured that the EUR closed at its lows for the week. Data releases were dominated by the German ZEW and IFO releases and the early week PMI prints. The latter disappointed for the euro wide manufacturing print as it fell from the month prior, whilst the services and composite numbers also under-delivered on the consensus. Strong gains were noted across all three PMI indicators in Germany. The German IFO rose to its highest this year and was led mainly by a rise in the expectations series which suggests an improving German business outlook. The earlier ZEW survey of economic sentiment showed a decline in economic expectations however, although the current situation read posted a notable rise from the month prior. Data released overnight saw German inflation and EU confidence come in marginally above expectations. Political events were in the limelight also last week after the Eurogroup agreed to extend further funding to Greece, although the IMF has stated in recent hours that it is unwilling to participate in further support for Greece until it sees a concrete plan from the European’s to substantially cut the country’s debt burden.
United Kingdom
The May bank holiday has meant a quiet start in the UK this week. Trade last week was once again dominated by fluctuating sentiment on the likelihood of a Brexit at the looming June 23rd referendum. Comments from the BoE Governor Carney on the issue dominated headlines once again during the week as he spoke of the looming vote as posing the biggest risk to UK growth. Carney noted that the economy appearing to be slowing in the lead-up and that it was probably related to issues around the vote. Data last week confirmed that economic growth had slowed markedly in Q1 to 0.4% from the 0.6% rate registered in the final quarter of 2015. Other economic indicators of lesser interest included soft BBA home lending numbers for April and a pick-up in CBI reported sales for the month of May. PMI data will dominate the newsreel this week, although house price and mortgage data should also provide passing interest.
Japan
The JPY has continued to remain under pressure in trade this week as it extends its losses which began on Friday after the hawkish comments over US rates from Fed Chair Yellen. Local inflation data released earlier in the day set the tone for the weak sentiment falling 0.3% y/y (headline) in April, an outcome which extended the decline from March as lower commodity prices and the stronger yen deepened the BOJ’s deflationary quandary. Data released earlier in the week included manufacturing PMI numbers which weakened at the fastest rate in three years and trade numbers that whilst showing a larger than expected surplus in April included a large 23% plunge in imports. A senior ruling party official said yesterday that Japanese PM Abe had announced plans to delay next April’s planned sales tax by 2 ½ years, in a decision which is aimed at avoiding a blow to the fragile economic recovery. Opposition against the move came from the Finance Minister Taro Aso. Local data releases this week started with retail sales yesterday which fell less than expectations. Household spending and Industrial production numbers released this morning easily outstripped their respective estimates, whilst the April unemployment rate remained unchanged on the month prior at 3.2% (and was on expectations). Other data of interest this week includes numbers on capital spending, construction orders and housing starts.
Canada
Trade in the CAD remains in a lull since our last report as both the US and the UK celebrated holidays overnight. Oil prices remain near their 2016 highs in current trade, although the CAD weakness of recent weeks indicates a greater focus on recent economic data and rate spreads vs the US, which point to a softening Q2 in Canada. Last week was dominated by the BoC rate meeting which saw the central bank leave rates unchanged at 0.5% and trim their estimates for the Q2 GDP growth due to the Alberta wildfires. Data released overnight had little impact after the Q1 current account printed in line with the consensus whilst producer price data for April missed the target on the back of reduced prices for vehicles and parts. Canadian data to watch out for later in the week includes March GDP numbers later today. Trade and labour productivity data due for release on Friday will take a back seat to the busy US data schedule (dominated by employment and earnings) slated for release at the same time.
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Ian Dobbs is a currency analyst with Direct FX You can contact him here »
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