NZDUSD has recovered to 0.7000 level, however NZD weakness is expected in the near term; against the AUD, NZD likely to be rangebound after facing resistance at the 0.9300 level; mixed USD data and Trump comments have added volatility to the markets

By Ian Dobbs*:

Geopolitical concerns have been front and centre over the past week with Trump’s unleashing of the military in Syria and Afghanistan coinciding with heightened tensions around North Korea. US relations with Russia are also at a low point, despite the media having suggested to everyone for the past 3 or 4 months that Trumps some sort of Russian stooge! It seems the one thing Trump really is, is unpredictable and that should see risk aversion remain heightened to a degree. We also have the French elections looming large and the potential for some real volatility in the EUR if Le Pen comes out ahead in the first round of voting.

Major Announcements last week:

  • UK Claimant Count Change +25.5k vs -10.2k expected
  • UK Average Earnings Index +2.3% vs 2.1% expected
  • BoC leaves interest rates unchanged at 0.5%
  • Australian Employment Change 60.9k vs 20.3k expected
  • Australian Unemployment rate 5.9% as expected
  • Chinese Trade Balance 164b vs 76b expected
  • Canadian Manufacturing Sales -0.2% vs -0.4% expected
  • US UoM Consumer Sentiment 98.0 vs 97.1 expected
  • US Inflation -0.3% vs 0.0% expected
  • US Retail Sales -0.2% vs 0.1% expected

NZD/USD

The New Zealand dollar was under relentless pressure from the USD for much of last week trading to a low of 0.6908 early on Thursday morning. That’s when President Trump caught the market off guard with comments published that he likes a low interest rate policy and that the USD was too strong. This immediately saw the US dollar under pressure across the board. The NZD jumped a full cent against the USD in the hours that followed and it’s now comfortably trading around the 0.7000 area. At this stage there is significant support around 0.6900 and just below that level and we suspect that will continue to contain any periods of NZD weakness in the near term.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.7013 0.6900 0.7100 0.6910 - 0.7035

NZD/AUD (AUD/NZD)

The New Zealand dollar struggled to kick on with gains against its Australian cousin last week as resistance ahead of the 0.9300 level capped the topside. A very strong Australian employment number on Thursday then drove the pair down to the weeks low at 0.9210. The NZD has recovered to now trade around 0.9250, but last week's failure on the topside would suggest further gains will be limited in the near term. Look for further ranging between 0.9200 and 0.9300 unless we get a big surprise from this week's diary action or NZ inflation.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9273 0.9200 0.9300 0.9219 - 0.9289
AUD / NZD 1.0784 1.0725 1.0869 1.0765 - 1.0847

NZD/GBP (GBP/NZD)

The New Zealand dollar lost some ground to the UK Pound last week, with the pair temporarily breaking below key support around 0.5575. That move extended all the way down to a low of 0.5531 before the pair bounced back above 0.5575. The damage looks to have been done however and we look for further tests of the downside over this week. UK economic data continues to be broadly supportive of the economic outlook going forward.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5583 0.5420 0.5620 0.5531 - 0.5608
GBP / NZD 1.7910 1.7793 1.8450 1.7831 - 1.8081

 NZD/CAD

The Canadian dollar was making good gains against the NZD in the first half of last week, trading to a low of 0.9164, but it all turned around mid-week and we saw the New Zealand dollar recover back above 0.9300. A number of drivers caused the turnaround including the Bank of Canada rate decision, declining oil prices, and Trumps talk of the USD being too strong. The outlook over the coming week is for range trading between the broad parameters of 0.9200 and 0.9400. Key to direction will also be the dairy action tonight and tomorrow NZ inflation data.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9343 0.9160 0.9400 0.9175 - 0.9354

NZD/EURO (EURO/NZD)

The New Zealand dollar had a reasonably positive week against the Euro last week, although it’s given back some of those gains in the past couple of days. It’s hard to see the EURO gaining too much ground as we draw closer to next week’s voting in the first round of French elections. If Le Pen makes it through to the second round of voting the EUR will suffer. Key support comes in around 0.6535 and while above that level the risks remain to the topside and NZD out performance.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.6590 0.6535 0.6605 0.6514 - 0.6624
EUR/NZD 1.5175 1.5140 1.5302 1.5098 - 1.5352

NZD/YEN

The New Zealand dollar remains trapped in a downtrend against the Japanese Yen that started back in late January. Last week it saw the pair trade to a low of 75.65 before a small bounce ensued. So far there is nothing to suggest the downtrend is running out of steam and as such the risks remain skewed toward further losses. It would take a move above 76.60 to signal that the downtrend may be under threat. Until then, the outlook is for further losses. Geopolitical concerns have certainly played a part in this move and it’s hard to see any significant improvement on that front this week.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 76.41 75.00 76.60 75.69 -76.98

AUD/USD

For much of last week the Australian dollar was losing ground to the USD. It was testing key support around 0.7475 early on Thursday morning when President Trump caught the market off guard with comments published that he likes a low interest rate policy and that the USD was too strong. This immediately saw the US dollar under pressure across the board. This boosted the AUD which then gained further support from the strong Australian employment data later in the day.  We would look for support around 0.7475 to continue to contain any potential periods of AUD weakness over the course of this week.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7557 0.7475 0.7600 0.7474 - 0.7610

AUD/GBP (GBP/AUD) 

The UK Pound has made gains against the Australian dollar recently and that trend looks set to continue this week. The Australian dollar did see a period of strength in the wake of much better than forecast employment data, but it doesn’t look to have been enough to change the broader trend. We look for another test of key support around 0.5980 over the coming days.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.6016 0.5980 0.6100 0.5980 - 0.6059
GBP / AUD 1.6623 1.6393 1.6722 1.6503 - 1.6721

AUD/EURO (EURO/AUD)

There has been a lot of back and forth price action in this pair over recent weeks, but little overall direction. In fact for the past month the majority of price action has been contained between the broad parameters of 0.7000 and 0.7200.  We see this continuing over the coming week, with the risks skewed toward the top of that range as political uncertainty in France weighs on the Euro. A strong Australian employment result last week should also add some underlying support to the Australian dollar and keep the focus on a test of 0.7200.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.7100 0.6990 0.7200 0.7034 - 0.7151
EUR/AUD 1.4085 1.3889 1.4306 1.3984 - 1.4217

AUD/YEN

The Australian dollar lost ground to the Japanese Yen for much of last week, trading to a low of 81.85. We did see the pair recover sharply from that low thanks to a strong Australian employment number, but the broader downtrend is still dominant. It would take a move above resistance around 83.50 to suggest the balance of risks has shifted. Until then look for further tests of support.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 82.35 81.80 84.00 81.88 - 83.14

AUD/CAD

It really was a week of two halves for this pair last week. The Canadian dollar made gains against the Australian dollar in the first half, but these were quickly reversed in the later stages of the week. The recovery came in the pair came on the back of the Bank of Canada rate statement, declining oil prices and very strong Australian employment data. Resistance comes in around 1.0130 and any break above there would be a bullish signal.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 1.0067 0.9960 1.0130 0.9927 - 1.0122

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Market commentary:

Geopolitical concerns have been front and centre over the past week with Trump’s unleashing of the military in Syria and Afghanistan coinciding with heightened tensions around North Korea. US relations with Russia are also at a low point, despite the media having suggested to everyone for the past 3 or 4 months that Trumps some sort of Russian stooge! It seems the one thing Trump really is, is unpredictable and that should see risk aversion remain heightened to a degree. We also have the French elections looming large and the potential for some real volatility in the EUR if Le Pen comes out ahead in the first round of voting.

Australia

Australia produced some very strong employment numbers last Thursday which were much better than forecast. They were in fact so strong as to raise a few eyebrows as to the accuracy of the data. Employment change for March came in at +60.9k vs expectation of +20.0k. Full time employment was up a whopping 74.5k, with part time jobs down 13.6k.The unemployment rate remained unchanged at 5.9%. In recent years the Australian Statistics Bureau has had issues with employment numbers and these latest results would suggest things may still be somewhat amiss. The best approach is to look at the 3 month average to as to eliminate the monthly swings. That all being said, the data is very supportive of the economy going forward and it certainly boosted the Australian dollar in the latter stages of the week. Also on Thursday the RBA release their Financial Stability Review. In it they mentioned that vulnerabilities in housing and household debt have increased. They say those risks are more to the economic outlook than to financial institutions and that regulators are carefully watching bank lending and are ready to tighten rules further if needed.

New Zealand

Last week was a very quiet one in terms of economic data from New Zealand. We had the Business NZ Manufacturing Index which came in at 57.8, up from 55.7 prior. The impact on the currency was negligible. This week should prove a little more interesting with a dairy auction tonight and then inflation data tomorrow to draw focus. The New Zealand dollar has largely been driven by offshore events recently with swings in risk sentiment, geopolitical concerns and broad movements in the USD dominating. We expect more of the same over the coming weeks.

United States

The United States saw a mixed bag of data last week along with some Trump comments that added volatility. Positive data results were seen from weekly jobless claims, and consumer sentiment while retail sales and inflation data came in weaker than forecast. There has been a notable divergence in recent months with ‘soft data’ such as confidence surveys etc coming in strongly, while ‘hard data’ like retail sales, durable goods orders etc, largely disappointing. At some stage the soft and hard data will have to converge. Either confidence surveys will come back to economic reality, or the hard data will pick up to support the high levels of optimism. Our feeling is that the soft data is more likely to correct lower, but time will tell. Late last week President Trump caused the USD to come under pressure after he made comments that the USD was too strong and the he like low interest rate policies. The USD lost significant ground across the board. At this stage it’s just Trump making comments, but if the US actually moved away from the official “strong dollar” policy which has existed for a generation, the impact would much greater. So far there’s no indication of this but it’s something to be wary of.

Europe

Data out of Europe has been showing signs of improvement recently and that continued last week with better than expected outcomes for German ZEW Economic Sentiment and Italian Industrial Production. Unfortunately political uncertainty is going to limit any EUR gains for the time being. We have the French election kicking off next week with the first round of voting. The polls are tight and any combination of candidates could make it through to the second round in May. There is also a very large amount of undecided voters, around 30%, and they will prove key. As was the case with the US election, it may well be that many of those voters are simply too embarrassed to admit to pollsters that they are going to vote for the candidate the media like to attack, in this case Marine Le Pen. If that’s the case, her support could be significantly better than the polls suggest. The undercurrents that drove the Brexit vote and Trumps win in the US election are all prevalent in France. But added to this France, more than any other country, has suffered numerous devastating terrorist attacks over the past few years and that has help to drive Le Pen’s candidacy. She’s anti the Euro so if she does surprise with a win, the entire Euro project will start to look very shaky. Germany's Schaeuble said last week that if Le Pen and Melenchon were the finalists for the second round, it would be a ‘nightmare’. I would say there’s a very good chance this will in fact be the case.

United Kingdom

Data from the United Kingdom continues to suggest the UK economy is taking the whole Brext uncertainty thing in its stride. Last year there was talk that the economy would be in recession by now, but nothing could be further from the truth. The unemployment rate is currently at a very healthy 4.7%, inflation is running at 2.3% and even wage data is showing signs of strength. Uncertainty about how Brexit negotiations with the EU will go are obviously keep the GBP under some pressure, but the current economic data doesn’t support a dramatically weaker GBP. This week we have a speech from Bank of England Governor Carney to digest along with the latest retail sales figures.

Japan

The Japanese Yen has been strengthening lately driven by in part by risk aversion as the geopolitical situation creates nervousness. Economic data has also been reasonably supportive and late last week we saw Industrial Production revised up to +3.2% from 2.0% prior. This week we have the trade balance, manufacturing PMI and Tertiary Industry Activity data to digest. Expect the Yen to remain broadly supported as the geopolitical situation remains front and centre in terms of near term risks.

Canada

The bank of Canada had their rate meeting last week and they chose to leave interest rates unchanged at 0.50%. They did however boost their growth forecasts acknowledging that economic data has generally been stronger than expected. Governor Poloz did stress however that there is a lot of uncertainty and that’s it’s too soon to make any conclusion on interest rates. Declining oil prices have kept a lid on any potential CAD strength and we see that continuing over the coming week. In terms of economic data to keep an eye on we have inflation numbers on Friday. The market is expecting an uptick to 0.4% from the prior month's reading of 0.2%.

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

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