NZD trading at 0.7280 USD and 0.9630 AUD after disappointing AU data; US markets look towards FOMC meeting and Non-farm payrolls; Asian markets subdued as nations celebrate Chinese New Year holiday

The New Zealand dollar is still holding firm against the USD, as the economy continues to provide solid performance. Currently sitting around 0.7280 after a high of 0.7290 overnight, next stop is 0.7315 which if breached would target 0.7400, but given the large US data dump this week the market will be less inclined to push the New Zealand dollar that far ahead.

NZD/AUD (AUD/NZD)

The New Zealand dollar continues to hold firm on this cross and with a continuation of disappointing Australian data we expect this trend to continue. Is currently trading around the 0.9635 level after an overnight range of 0.9592-0.9642 (1.0425-1.0371). Immediate resistance is at 0.9645 (1.0368) then 0.9665 (1.0346) then 0.9730 (1.0277). Both the New Zealand and Australian dollars will be vulnerable to the US data this week and we expect New Zealand rises to be capped around the 0.9665 (1.0346) for the next few days.

NZD/GBP (GBP/NZD)

UK Pound strength has pressured the New Zealand dollar lower over the last few days, helped by what was seen as a positive trip for UK PM May to visit President Trump. Also helping the GBP generally, have been better UK data releases. Currently at 0.5830 (1.7150) after a range of 0.5769- 0.5845(1.7334-1.7107) overnight. The New Zealand dollar looks to be reasserting control over this cross, not surprising given our more favourable fundamentals.

 NZD/CAD

The New Zealand dollar  has lost some of last week’s gains against the Canadian dollar with this cross currently around 0.9545 (1.0477) trading has been in a sideways pattern over the last 4 days ranging between 0.9554-0.9468 (1.0466-1.0562) if this range breaks to the downside immediate support would be around 0.9430 (1.0604).

NZD/EURO (EURO/NZD)

The New Zealand dollar continues to strengthen against the EUR now trading at 0.6808 (1.4687) up nearly 100 points from levels seen last week. With resistance at 0.6810 (1.4684) now broken, next target is 0.6870(1.4560) last seen at the end of April 2015. If this level is breached an extension to 0.7060 (1.4164) is possible. However the New Zealand dollar has come a long way on this cross and further signs of Eurozone inflation emerging could see a retracement of EUR losses.

NZD/YEN

Currently the New Zealand dollar sits around 82.85 against the Japanese Yen having made an overnight high of 82.60. It is still well supported and given no surprises from the BoJ meeting a push back to test the 83.80 level looks likely. This level provides good resistance with immediate support now around the 82.50 mark.

AUD/USD

Currently the Australian dollar is around 0.7568 and continues with a softer tone after last week’s disappointing CPI data. Trading should be subdued this week as Chinese markets are closed for the majority of the week for the Chinese New Year holiday. The lower gold prices have also kept Australian dollar trading muted, but major support at 0.7450 is still far away, although any surprise by the US Fed tomorrow, or a major rise in Non-farm payrolls on Friday would place pressure back on the AUD.

AUD/GBP (GBP/AUD) 

After initially dropping to 0.5964 1.6767) last week the Australian dollar has retraced some of its losses and currently sits around 0.6047 (1.6537). There was little substantive in the US-UK leaders visit and it appears that the UK Pound may continue to give back gains as Brexit concerns outweigh issues around the Australian rating downgrade potential.

AUD/EURO (EURO/AUD)

The Australian dollar has retraced some its losses over the last few days coming from 0.7005 (1.4274) last week to 0.7076 (1.4131) , the 0.7000 support level is now well protected , with this cross now looking to be in a sideways pattern for the next few days. Any further upticks on Eurozone inflation would pressure the AUD vs the Euro

AUD/YEN

Choppy trading but within an overall uptrend channel, currently trading around 85.92 towards the bottom of the channel, immediate support is at 85.71, unless any major by the BoJ tomorrow we expect this cross to continue to gradually trend higher. An Australian downgrade would negate this view, a break of 85.25 would target 84.90 but unlikely until next week.

AUD/CAD

The Australian has retraced some of last week’s previous losses on this cross over the last 4  days, coming from a 0.9848 low to currently sit at 0.9910 as the CAD fell on weaker oil prices...the Governor of the Bank of Canada is expected to talk the CAD down in a speech later tonight ahead of the Canadian GDP data also due  tonight.

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Market commentary:

Most of the news over the weekend has centred around President Trump’s executive order barring immigrants from 7 Muslim countries entering the US and its effects. Although this has rattled nerves, this week will see markets focus first on the FOMC meeting on Wednesday then the Non-farm payrolls on Friday which should give an indication that the US economy continues to recover at good rate. US GDP data for Q4 was weaker than expected which saw the USD marginally softer, giving investors little reason to continue to add to reflation trades that have set the tone on markets since Donald Trump’s election. US equities were little changed near all-time highs amid some solid corporate earnings. The meeting between Prime Minister Theresa May and President Trump ended without any major tangible result (but this probably always going to be the case given it came only a week after Trump’s inauguration) there was a board statement that they would work to establish trade agreements and continue to cooperate on defence, with May adding that President Trump was “100% behind NATO”....time will tell..! Asian markets will be fairly subdued over the next few days as China and several other Asian nations celebrate the Chinese New Year holiday…..welcome to the year of the Rooster…!

Australia

The threat of a downgrade to Australia’s AAA credit rating is closer, as news was released that the federal government will be forced to lift its own self-imposed credit limit in the coming months as debt levels spiral towards half-a-trillion dollars. That’s almost double the number the Coalition inherited from Labour. The gross debt level is now $474 bio up from $274 bio in September 2013 when the Coalition under Tony Abbot was elected. This debt level is now only $26 bio short of the $500 bio debt ceiling set by former treasurer Joe Hockey three years ago and expectations are now for this ceiling to be breached by June, possibly sooner. Expect more weakness ahead for the Australian dollar

New Zealand

Figures for immigration and tourist numbers out today show a record number of tourists and immigrants came to New Zealand in 2016 with more migrants coming in on work visas and more holidaymakers than ever before, and expectations are for migrant inflows to keep increasing. Annual net migration hit 70,600 in December 2016, with the biggest net migrant gains from China, India, the UK and the Philippines. Migrant arrivals rose 4 % to 127,300 in the year, also a new record, while migrant departures dipped 0.5 % to 56,700. This data continues to reinforce the success story of the New Zealand economy and with the continuing solid dairy price performance, underpins the New Zealand dollar and makes it more likely that an uptick in inflation later in the year will see interest rates start to trend higher.

United States

With most of the news from the US centring around the immigrant ban, US stocks have dropped sharply with the Dow falling back below the 20,000 level. The concern is that Trump’s order on immigration has raised speculation that he may follow through with further isolationist policies espoused on the campaign trail, overshadowing a pro-growth agenda that kicked off the equity rally. With a more risk averse tone evident, gold and the JPY were higher and the US dollar lower as investors showed more favour for safe haven assets. Although most of the news centred around the immigrant ban, this week economic attention will switch to the FOMC meeting on Wednesday, which will be closely monitored for any hints of timing for rate rises and the results of the first Non-farm payroll for the new year due on Friday. Also of note this week are continued corporate earnings results from heavyweights Apple, Facebook and Amazon, of the S&P 500 companies to report so far 73% have beaten earnings estimates.

Europe

The era of low interest rates for the EU may be close to an end as borrowing costs in the Eurozone region jumped to multi-month highs. Data confirmed inflation in Germany reached a 3 1/2-year high in January, closer to the European Central Bank's target and increasing  talk about the timing of unwinding its monetary stimulus. French government bond yields hit a 16 month high on additional upward pressure from uncertainty surrounding the upcoming presidential elections, a key political risk event for Europe. Also of note , were some alternative comments from an ex-ECB board member who said that the Eurozone should break up if its members were to thrive again. Jurgen Stark, also a former vice-president of Germany’s Bundesbank, commented that there needed to be a two-speed Eurozone, with France and Germany at the core which would help to ensure the smaller secondary bloc’s survival. He suggested Belgium, France, Luxembourg, the Netherlands and Germany, plus Austria and Finland would form one bloc of the system, with staggered integration for other countries such as Italy and Greece. His comments mirrored concerns earlier voiced during the GFC whether it was still appropriate to keep countries together with different economic structures and different economic performance

United Kingdom

Although PM May’s visit to the US was short on detail, the signs were that it augured well for a potential UK-US trade deal once the UK is released from its EU obligations in around 2 years. Later this week the Bank of England is expected to upgrade its growth forecasts for the second time in three months. The economy continues to rises above expectations of a post-Brexit vote slowdown. Some market analysts are expecting the BoE forecast to rise to 1.7% up from 1.4% in November and substantially higher than the  0.8% in August.
On Thursday the Bank’s Monetary Policy Committee is expected to leave its growth forecast for 2018 at 1.5%, with 1.6% for 2019. Economists expect inflation to lift well above 2% this year, as the fall in the pound’s value pushes up import prices and consumer costs.

Japan

The Bank of Japan met today and as widely expected they left monetary policy unchanged. The bank said uncertainty around US monetary policy, China and Brexit pose potential downside risks. Although retail sales data was softer than expected this was largely ignored by the market. The BoJ has increased the pace of longer-term JGB bond purchases over the last week which has put pressure on the JPY and BoJ policymakers will be hoping that any Trump inspired USD rally continues to weaken the JPY. Due this week are earnings reports from industrial heavy weights, Honda Motor Co and Sony Corp.

Canada

The Canadian dollar recovered marginally at the end of last week as concerns abated over any changes to NAFTA that may occur under President Trump. There is a speech by the Canadian Central bank head, Stephen Polz later tonight where he is widely expected to try and talk the CAD lower. Tonight will also bring GDP data for Q4 but these results may well be overshadowed by the US Fed statement later tomorrow.

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Ian Dobbs is a currency analyst with Direct FX You can contact him here »