Trade-war concerns, political risk in Europe and divergence in monetary policy across the globe remain, some of the ongoing key themes to worry investors; NZD extends its five week decline bumping against 0.6690 with the USD

NZD/USD

The New Zealand Dollar (NZD) extends its five week decline bumping against 0.6690 with the US Dollar (USD) Wednesday after worse than expected NZ Business confidence and Global Dairy Auction results hinder the kiwi's progress. We saw a small spike higher to 0.6780 late last week as we commented could happen but the kiwi has remained heavy in a market buying the safer greenback. A bounce higher to 0.6760 looks to be temporary with a break above 0.6780 needed to confirm any such moves north. Today is a US holiday- Independence Day which should add increased volatility to currencies with investors and market players being thin. Non-Farm Payroll is Friday with markets expecting the number of new employed people to be a little lighter than June 2 figures.

NZD/AUD (AUD/NZD)

Congratulation to all those sellers of AUD who have waited patiently for the ar#e to drop out of the New Zealand Dollar (NZD). The NZD/AUD traded down to 0.9098 (1.09915) overnight the lowest level since 31 January 2018. We suspect we may still see further weakness in the New Zealand Dollar (NZD) but breaking lower through 0.9000 (1.1111) may be optimistic but certainly anything low 0.9000’s is great selling based on the 0.9545 (1.0480) high back during mid-April 2018. We have seen a rebound over the last few hours back to 0.9160 (1.0920), again well done to clients who have had orders trigger in the last day of trading, orders are the way to take advantage of favourable spikes such as these. We should see a relatively quiet end to the week with only Aussie Retail Sales to print this afternoon to shift things about.

NZD/GBP (GBP/NZD)

The British Pound has pushed to new heights against the declining New Zealand Dollar (NZD) as it traded to 0.5100 (1.9615) earlier this week before easing back to 0.5130 (1.9500). With positive UK data this represents a buoyant GBP, it’s looking like it may retest 0.5080 (1.9700) again the low of mid May 2018. Long term support is still seen at 0.5045 (1.9830) going all the way back to brexit voting in June 2016. Later in the week Bank of England (BoE) Governor Carney speaks around the state of the economy.

 NZD/CAD

The New Zealand Dollar (NZD) is still heavy across the board, against the Canadian Dollar (CAD) it has bounced off the low of 0.8835 trading at 0.8870 currently. Huge support is still in play at 0.8870, with little on the NZ docket this week we look to Canadian Unemployment announcements to gauge further direction. We are picking a bounce back to 0.9000 as the Crude oil price drops away in the coming days.

NZD/EURO (EURO/NZD)

The kiwi Dollar (NZD) has continued its decline from the high of 0.6030 (1.6580) of 14th June against the Euro (EUR) slipping below 0.5900 (1.6950) to reach a low of 0.5760 (1.7370) Wednesday. With German geopolitical worries at the forefront of EUR direction we have yet to see the NZD stabilise. New Zealand Business confidence and a weak GDT result (Global Dairy Auction) has not helping the kiwi. The cross trades just below support of 0.5820 (1.7200) and hangs in the balance with no additional data releasing over the week. We think a retest of 0.5725 (1.7470) could been in jeopardy over the coming days.

NZD/YEN

Investors bought the Japanese Yen (JPY) early in the week against the New Zealand Dollar (NZD) buoyed by Japanese manufacturing numbers and a weak NZ business confidence. Dropping to a November 2016 low of 74.00 the kiwi has not been well supported. A recovery of sorts has seen the NZD recover back to 74.70 as market investors sought more risk with trade talks gone silent. From here we expect further NZD weakness, the bearish slide to continue possibly to retest mid 2016 levels around 72.00

AUD/USD

The Australian Dollar (AUD) closed the week around 0.7400 levels against the US Dollar (USD) rebounding off 0.7330 earlier in the week. Further declines were expected Monday which is how it eventuated as the Aussie travelled back to 0.7310 after better than expected US ISM Manufacturing figures and weaker than predicted Australian Building Approvals boosted the US Dollar (USD). The RBA's cash rate remained unchanged at 1.50% with the statement largely benign. Retail Sales published up on the expected 0.3% coming in at 0.4% sending the Aussie back above 0.7410. Interestingly Trade Balance printed at 0.83B down on markets anticipated forecast of 1.21B but had little adverse effect on the Australian Dollar. 0.7450 the next significant level but we suspect this short spike is only temporary. Buyers of USD should look at this spike.

AUD/GBP (GBP/AUD) 

Large swings in the Australian Dollar (AUD), British Pound cross continued last week with the high of 0.5640 (1.7720) and the low of 0.5580 (1.7940) representing a lack of volatility and economic data. Australian Building approvals disappointed coming in at -3.2% based on 0.1% markets were expecting, depreciating the Aussie. The RBA statement was largely based on rhetoric of late with no real surprises the Aussie Dollar held its ground. UK Construction was positive and took the pair from 0.5615 (1.7810) to 0.5600 (1.7860) with Australian Retail Sales to publish later today. Buyers of GBP may get a bounce higher soon as we expect prices to improve back toward 0.5750 (1.7400) in the medium term.

AUD/EURO (EURO/AUD)

You rarely see a bullish channel on the chart form so perfectly formed as the one in progress now with the Euro (EUR), Australian Dollar (AUD). It started from the high of 0.6545 (1.5280) and has extended over the last five weeks to 0.6295 (1.5890). Technically with this in mind investors and traders would be keen to bet against further momentum in the EUR as it makes further advances towards 0.6250 (1.6000)

AUD/YEN

The RBA cash rate announcement yesterday saw the benchmark rate stay on hold at 1.5% the Japanese Yen (JPY), Australian Dollar (AUD) pair not moving an inch over the announcement from 81.60. The statement by Governor Lowe which followed gave us nothing really new to consider, wage growth needs to improve along with lower household debt and higher inflation the concerns. The RBA also warned of future global strains to economies sighting the Trump trade war a real worry to everyone with more direction of international trade policy needed. Buyers of JPY should look towards spikes around 82.50, this level represents good buying based on the last 3 months Aussie decline.

AUD/CAD

The Australian Dollar made efforts to push higher late Friday against the Canadian Dollar (CAD) and was rejected at 0.9780 with buyers of CAD taking over based on positive monthly GDP figures. Closing the week at lows of 0.9730 it opened in a bearish mood falling to 0.9660 after Australian Building approvals printed lower than the 0.1% expected to -3.2%. The RBA kept rates on hold at 1.5% and said they would not be raising until well into 2019. Long term support sits at 0.9600 if data doesn’t represent positive news for the the Aussie Dollar this could be broken.

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Market commentary:

Trade-war concerns, political risk in Europe and divergence in monetary policy across the globe remain, some of the ongoing key themes to worry investors. This month looks to be overshadowed by the twin thrust of both politics and trade. Trade tariffs have kicked on, with Canada imposts becoming active with threats from the European Union and the US over the fallout of any car tariffs. This strained situation continues to fill financial markets with unease. The US President travels to Europe for a NATO meeting in Brussels to be held on 11–12 July. Tensions raised at the last G-7 meeting between the allied governments remain high, and NATO observers are asking whether the meeting in Brussels will be marred by calamities similar to those at the G7 meeting in Canada. Uncertainty around whether President Trump will stick to agreements or denounce them leaves his allies nervously in limbo. All of these uncertainties have the potential to make this month volatile for both currency and equity markets as they try and balance conflicting trade and political winds to prevent a more severe market dislocation. This week’s US 4th of July holiday, is likely to see lower trading volumes from today onwards until the all-important US Non-Farm Payroll is released. On the local front New Zealand business confidence continues to slip with technical indicators and markets suggesting that the Australian dollar may be set to rebound from a first-half 2018 loss against its New Zealand partner. The spread that Australia’s two-year bonds enjoy over New Zealand’s has now more than doubled to 20 basis points from the start of the year to the widest since 2013. The NZDAUD pair’s (MACD) moving average convergence divergence, a key momentum indicator has risen above a crucial area suggesting a bullish trend for the Australian Dollar.

Australia

The Australian Dollar has been one of the poorest performing currencies over the past week. Falling from a vulnerable opening price of around 0.7400 against the US Dollar (USD) the Aussie has dropped to 0.7312 Wednesday. The RBA cash rate was mainly benign as markets were expecting, the cash rate remains unchanged at 1.50%. The following statement again showed a willingness to take things slow towards higher wages, inflation and growth. The RBA won’t look to tighten monetary policy until well into 2019. The governor Lowe obviously nervous about the consequences of stunting the economy by raising rates to soon. The Aussie Dollar (AUD) was unmoved over the announcement. Governor Lowe made comment around the demand for investor property slowing noticeably recently, which falls in line with earlier published Building approvals which was significantly lower at -3.2% based on 0.1% markets were expecting. Retail Sales today offers a good gauge for possible continued bearish momentum.

New Zealand

The New Zealand Dollar remains under massive pressure across the board. This week alone it has declined against the US Dollar to a low of 0.6700 - a two year low last seen at this level in May 2016. Forcing its way through key support levels of 0.6850 and 0.6820 and the long term level of  0.6780 it still looks like it has more to run in this downward cycle. The TWI hovers around the 72.00 level from 75.50 back in mid May and shows a rapid depreciation against a basket of currencies. With the RBNZ holding rates last week and a negative bias towards raising rates its possible we may see further easing in policy. Certainly, resent rhetoric suggests this with markets not expecting a hike to rates until march 2020. The (NZIER) Institute of economic research - business confidence figures printed Tuesday and showed a decline in confidence in line with the ANZ business confidence figure last week. Both numbers confirm a dislike of the labour government as recent figures of recent years correspond perfectly. The Global Dairy Auction was overnight with the auction disappointing farmers. The index was down 5% but more importantly the Whole Milk price down a whopping 7.3%. Later in the week we have US Non-Farm Payroll figures - if the number prints better than 200k we may see a further decline in the fragile NZD.

United States

Donald Trump has met with the prime minister of the Netherlands earlier in the week saying again that the world trade organisation has mistreated the US. He stands solid with his positions of tariffs and trade. This comes in the wake of financial markets clocking a disappointing first half of the year with global signs that the uncertain policies on global trade were starting to really pinch.  In the latest survey of American factories, tariffs were driving up manufacturing costs and interest rates. With a full blown trade war still a tweet away we remain wary of economic growth based on reduced trade volume and distribution of products which will further weaken business confidence. ISM Manufacturing printed at 60.2 higher than the 58.2 expected showing expansion in the sector surprising markets. later in the week we await the US Non-Farm Payroll numbers to move markets, a number of around 200k is forecasted down on the June 2 number of 223k. The US Dollar Index has risen to 94.95 showing a currency booming over the last fortnight.

Europe

The Euro (EUR) opened the week at 1.1680 against the US Dollar (USD) and was quickly sold off to 1.1590 where is steadied. The German Chancellor Merkel's coalition government remains in place after she reached a deal this week over the country's migration policy, ending a stouch with her interior minister. The debate being how many immigrants Germany would take in and how the country would patrol its borders. The agreement put in place is a good compromise as Germany will work with migrant asylum countries before sending them back home. The EUR still favours the range between 1.1500 and 1.1700 over the past few weeks after it declined from the high of 1.2500 back in February this year. The Eurozone has a quiet week on the economic docket with nothing significant to release.

United Kingdom

The British Pound (GBP) closed the week around 1.3200 levels after rebounding off 1.3050 earlier in the week against the US Dollar (USD). On the open the GBP was quickly under pressure as it lost ground across the board, positive US ISM Manufacturing figures dropping the pair to 1.3100. UK Construction numbers printed Tuesday showing a rise from 52.5 points to 53.1 beating forecasts for a decline of 52.4 points. While this is said to not be a major increase it does show an accelerating pace of the British construction sector. Not all economists are happy though with the some large contractors blaming Brexit concerns for the delay in some cases cancellation of projects. Markets now await tonight’s Purchasers Managers Index (PMI) for further clarification of the manufacturing numbers.

Japan

The Japanese Yen has started the week tentatively slipping against most major pairs but recovering Tuesday reversing recent losses. The Tankan Manufacturing Index earlier in the week published benign coming in slightly lower for the second quarter of 2018. Japanese final manufacturing figures improved to 53.0 close to the estimated 53.1 points expected. Trade tensions remain at heightened levels and although Kapan has not been directly involved with the US tariffs if a global trade war does develop this could be disastrous for Japan which is heavily dependent on exports. Currently the Japanese Yen (JPY) is trading at 110.50 against the US Dollar (USD) as markets await US Nonfarm Payroll numbers Friday.

Canada

The Canadian Dollar (CAD) traded higher over the past few days with a healthy Crude Oil price above 74.00 the CAD has been one of the strongest currencies. Prior to the close of the week, monthly GDP printed at 0.1% above the 0.0% expected with 12 of the 20 industrial sectors increasing. This figure is particularly important with the figures rising every month since January. With a Canadian holiday Monday we saw the CAD ease back a little off its highs with equities and risk products closing lower. A light calendar this week, we may not see much movement until US Non-Farm Payroll Friday. Following this Canadian Employment figures and Trade Balance.

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