By Ian Dobbs*:
Although the USD has continued to see broad based support on the back of rate hike expectations, it hasn’t been enough to see a break out of recent ranges.
In fact many currency pairs have spent the better part of the past month confined to now familiar trading ranges. This won’t last forever, but for the time being the market seems comfortable with the lack of overall direction.
There are some key releases this week that could certainly shake things up, with US manufacturing PMI and non-farm payrolls change of particular interest.
The Australasian currencies will also be paying close attention to Thursday’s release of Chinese manufacturing PMI numbers.
Any sign of further weakness in the Chinese economy will pressure the AUD, and to a lesser extent the NZD.
Equity markets continue to look vulnerable and this is hampering risk sentiment in the wider markets.
Major Announcements last week:
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Australian House Price Index QoQ +4.7% vs 1.6% previous
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UK Public Sector Borrowing 11.305B vs 8.65B expected
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US House Price Index MoM +.6% vs +.4% expected
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EUR Manufacturing PMI 52.0 vs 52.0 expected
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US Manufacturing PMI 53 vs 53 expected
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NZ Trade Balance MoM -1.035 B vs -850M expected
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US Durable Goods Orders -2% vs -2% expected
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Japan Inflation YoY -.1% vs -.1% expected
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US GDP QoQ 1.9% vs 1.8% expected
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US Personal Consumption YoY 1.3% vs 1.2% previous
NZD/USD
The New Zealand dollar saw continued gains in the aftermath of Fonterra’s upgraded pay-out forecasts last Thursday. This helped propel the local currency to a high of just over 0.6400 late yesterday afternoon. However, the US dollar remains broadly supported by the ongoing expectation for an interest rate hike by the Fed over the coming months, and this eventually capped the NZD’s gains. The pair has drifted back toward 0.6300 over the past 24 hours. The failure to overcome resistance just above 0.6400 keeps the focus on the downside for now. There is little overall directional momentum however, and the pair may well continue to range between support just below 0.6250 and resistance just over 0.6400. Data from the US this week could easily provide a lead however with ISM manufacturing PMI and non-farm payroll change to key releases to watch. From NZ we just have building consents and business confidence numbers to digest over the coming days.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / USD | 0.6302 | 0.6250 | 0.6410 | 0.6237 - 0.6402 |
NZD/AUD (AUD/NZD)
This pair continues to be defined by a broad trading range that has dominated for more than three months now. NZ Dollar support around 0.8850 (resistance 1.1300), and then again at 0.8750 (1.1430), has contained the downside, while on the topside there is strong resistance around 0.9160(support 1.0920). In the wake of last week’s upgraded Fonterra forecasts the New Zealand dollar recovered from the lower part of that range and in the past 24 hours the pair has traded as high as 0.9110 (low 1.0977). At this stage there is nothing to suggest a break out of the current range and so selling into any further NZD strength is recommended. From NZ this week we just have building consents and business confidence numbers to digest. While from Australia we also get building approvals along with retails sales data. Chinese manufacturing PMI will also draw attention and another soft result will likely pressure the AUD more than the NZD.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / AUD | 0.9045 | 0.8850 | 0.9160 | 0.8841 - 0.9110 |
| AUD / NZD | 1.1056 | 1.0917 | 1.1299 | 1.0977 - 1.1311 |
NZD/GBP (GBP/NZD)
The New Zealand dollar has outperformed the UK Pound over the past week, driven largely by the upgraded pay-out forecasts from Fonterra. The NZD traded as high as 0.4215 (2.3725) GBP yesterday, but it seems that was a step too far and the price has moderated back to a more comfortable 0.4160 (2.4038) overnight. If minor support around 0.4160 (resistance 2.4038) contains the immediate NZD downside, the pair may well look to test above 0.4200 (below 2.3810) again. I would be wary of any sustained break above this level as it could open the way for a move toward 0.4300 (2.3255). If on the other hand 0.4160 (2.4038) gives way the cross will likely head back toward 0.4080 (2.4510). Local data this week in the form of building consents and business confidence numbers will draw some attention. While from the UK we have current account, consumer confidence, GDP, manufacturing PMI and construction PMI data along with a speech from BOE Governor Carney to digest.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / GBP | 0.4155 | 0.4020 | 0.4220 | 0.4064 - 0.4215 |
| GBP / NZD | 2.4067 | 2.3697 | 2.4876 | 2.3727 - 2.4606 |
NZD/CAD
The broad range of 0.8300 to 0.8500 has largely contained this pair for the past month. We did see a hint of strength from the New Zealand dollar with a move to 0.8531 yesterday, but it was short lived and the pair has quickly fallen back toward 0.8450 overnight. There is minor support around 0.8400 and if the NZD can hold above there we may see another attempt back up over 0.8500 develop. Key to near term direction however will be the release of Canadian GDP data on Wednesday night. From NZ this week we just have building consents and business confidence numbers to digest.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / CAD | 0.8441 | 0.8300 | 0.8500 | 0.8309 - 0.8531 |
NZD/EURO (EURO/NZD)
Like many of the New Zealand dollar crosses this pair has spent the last month trading within a well-defined range. NZ dollar support on the downside around 0.5550 (1.8020) has contained any weakness while there is solid resistance toward 0.5770 (support 1.7330). Late last week we saw the NZD start to outperform, thanks in large part to Fonterra’s upgraded pay-out forecasts. This relative outperformance continued in the early stages of this week with the pair trading to a high of 0.5728 (low 1.7460) yesterday. However, in the past 24 hours we have seen a sharp turnaround as a period of NZD weakness coincided with some Euro strength. This has driven the pair quickly back toward 0.5600 (1.7860). Nothing over the past week has suggest the cross is likely to break out in either direction and as such further ranging between 0.5550 and 0.5770 (1.7330 - 1.8020) is likely. From NZ this week we just have building consents and business confidence numbers to digest. While from Europe we have German retail sales and French consumer spending along with Eurozone inflation and unemployment.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / EUR | 0.5600 | 0.5550 | 0.5770 | 0.5572 - 0.5728 |
| EUR / NZD | 1.7857 | 1.7331 | 1.8018 | 1.7459 - 1.7947 |
NZD/YEN
There has been little to get excited about in this pairing over the past week, with a continuation of the 74.50 to 77.50 range that has dominated since the beginning of September. The New Zealand dollar gained support from Fonterra’s announcement late last week and that continued in the early stage of this week. As a result the pair briefly traded over 77.00, but there was little motivation to push the pair higher. In the past 24 hours the cross has pulled back sharply to levels below 76.00. At this stage there is nothing to suggest we will see a break of the current range, although there are some key releases from Japan to digest over the coming days. Retail sales, household spending, unemployment and the quarterly Tankan survey are all set to hit the wires. While from NZ we just have building consents and business confidence numbers to digest.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / YEN | 75.40 | 75.50 | 77.50 | 74.89 - 77.20 |
AUD/USD
The Australian dollar has failed to stage any meaningful recovery against the USD over the past week and is once again now trading back below 0.7000. The US dollar remains broadly supported by the ongoing expectation for an interest rate hike by the Fed over the coming months, and this is limiting any potential AUD upside. If we get further poor Chinese PMI data this week the AUD could easily test back down to the cycle lows just under 0.6900. Locally we have building approvals along with retail sales data to digest, while from the US the focus will turn to the key releases of ISM manufacturing PMI and non-farm payroll change.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / USD | 0.6965 | 0.6900 | 0.7100 | 0.6940 - 0.7158 |
AUD/GBP (GBP/AUD)
The past week has seen some choppy price action in this pairing, but trade has been largely contained within recent ranges. There is AUD downside support around 0.4520 (resistance 2.2125) while on the topside resistance comes in around 0.4660 (support 2.1460). Expect price action over the coming week to continue to be contained by those two parameters. From Australia this week we have building approvals along with retail sales data to digest, but the market will also be paying close attention to Chinese PMI data set for release on Thursday. Another soft result here will see the AUD downside tested. Meanwhile from the UK we have current account, consumer confidence, GDP, manufacturing PMI and construction PMI data along with a speech from BOE Governor Carney to digest.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / GBP | 0.4595 | 0.4520 | 0.4660 | 0.4544 - 0.4639 |
| GBP / AUD | 2.1763 | 2.1459 | 2.2124 | 2.1557 - 2.2006 |
AUD/EURO (EURO/AUD)
The Australian dollar has been under pressure from the Euro this past week and the pair is currently threatening to once again test level below 0.6200 (above resistance 1.6130). Over the past month the pair has been sub 0.6200 (above 1.6130) on a number of occasions, but each time the AUD has quickly rebounded. However, current sentiment is very negative toward the Australian dollar and that may make a quick recovery this time more difficult. We also have Chinese PMI data set for release on Thursday and this could easily weigh on the AUD further. Locally, we have Australian building approvals and retail sales data to digest over the coming days, while from Europe we have German retail sales and French consumer spending along with Eurozone inflation and unemployment.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / EUR | 0.6195 | 0.6200 | 0.6400 | 0.6179 - 0.6409 |
| EUR / AUD | 1.6142 | 1.5625 | 1.6129 | 1.5604 - 1.6185 |
AUD/YEN
The Australian dollar remains broadly under pressure across the board at the moment and it’s not a mile away from cycle lows on may crosses. Against the Yen the AUD underperformed for much of last week, and when we did see a corrective bounce it failed at the first level of resistance around 85.00. This keeps the near term focus on the AUD downside and the potential for a test of minor support around 83.00. From Australia this week we have building approvals along with retail sales data to digest, but the market will also be paying close attention to Chinese PMI data set for release on Thursday. Another soft result here will see the AUD downside tested. Japanese data this week in the form of retail sales, household spending, unemployment and the quarterly Tankan survey will also draw focus.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / YEN | 83.35 | 83.00 | 85.00 | 83.00 - 86.11 |
AUD/CAD
The Australian dollar lost significant ground to the Canadian dollar last week eventually settling in a narrow trading band between 0.9320 and 0.9380. The risks to that range are skewed to the downside with sentiment firmly working against the AUD at the moment. Locally we have Australian building approvals and retail sales data to digest over the coming days, but the market will also be paying close attention to Chinese PMI data due out on Thursday. Another soft result here will pressure the AUD further. From Canada we also have GDP data on Wednesday night which could easily impact the pair.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / CAD | 0.9335 | 0.9300 | 0.9500 | 0.9263 - 0.9467 |
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Market commentary:
Although the USD has continued to see broad based support on the back of rate hike expectations, it hasn’t been enough to see a break out of recent ranges. In fact many currency pairs have spent the better part of the past month confined to now familiar trading ranges. This won’t last forever, but for the time being the market seems comfortable with the lack of overall direction. There are some key releases this week that could certainly shake things up, with US manufacturing PMI and non-farm payrolls change of particular interest. The Australasian currencies will also be paying close attention to Thursday’s release of Chinese manufacturing PMI numbers. Any sign of further weakness in the Chinese economy will pressure the AUD, and to a lesser extent the NZD. Equity markets continue to look vulnerable and this is hampering risk sentiment in the wider markets.
Australia
There has been little data of note released from Australia over the past week to influence the currency or economic expectations. The Reserve Bank of Australia (RBA) are cautiously optimistic and are firmly ‘on hold’ in terms of potential interest rate moves, but sentiment in the wider market is much more negative and many forecasters are expecting further interest rate cuts from the central bank. Data over the coming days could certainly influence with local releases of building approvals and retails sales along with China’s official purchasing managers index (PMI). The continued slowdown in China will act as a drag on the AUD for some time yet.
New Zealand
It has been a relatively quiet week for economic data from NZ. Fonterra’s upward revision to pay-out forecasts certainly supported the NZD to a degree but confidence indicators continue to print at very soft levels. The latest of which was the Westpac McDermott Miller employment confidence index for quarter 3 which came in at 99.3 from 102.8 prior. That’s the lowest reading in three years. Tomorrow we get building consents and ANZ business confidence data. The Reserve Bank of New Zealand (RBNZ) released their annual report and in it they said international forces remain a major influence on the economy. Those forces includes large declines in commodity prices, particularly dairy and oil, low international interest rates, and record levels of net migration. The bank does point out the NZ’s economy has performed better than many advanced economies in recent years. Data set for release tomorrow in the form of building consents and business confidence are the highlights of an otherwise sparse economic calendar.
United States
There were a couple of key releases toward the end of last week from the United States that both helped to support the USD. Fed Chair Janet Yellen gave her first speech since the FOMC left interest rates on hold back on September 18th, and in it she’s confirmed the she still expects the Fed raise interest rate this year. We have had a number of comments from other Fed officials over recent days, who have been mostly singing the same tune. We also had the final reading of second quarter GDP which was revised higher to 3.9% from 3.7% prior. It seems solid consumer spending and business investment is underpinning growth, although inflation is showing little sign of upward pressure. The market has moved toward pricing in a 50% chance of an interest rate hike in December, which is by far and away the most likely time for a rate rise. Over the coming days we have plenty of data to digest which will all add to the current economic picture. CB consumer confidence, ISM manufacturing PMI, and non-farm employment change will be the highlights. There are also a number of other Fed officials set to speak including Yellen herself.
Europe
Confidence indicators in Europe are improving with readings from both German IFO business climate and French consumer confidence coming in above expectation in recent days. The French outcome was particularly impressive printing at it highest level since October 2007. These won’t have impacted expectations for further easing from the ECB however, after President Draghi made it clear last week that they are more than willing to extend quantitative easing if need be. The ECB are very alert to global risks and these were highlighted by a recent IMF report which has cut the German growth outlook on the back of a slowdown in emerging markets. The ECB have admitted that price growth is going to take longer to get back to their 2% target and this leaves them plenty of leeway to act if they desire. This week to draw focus we have German retail sales and French consumer spending along with Eurozone inflation and unemployment.
United Kingdom
There has been little in terms of influential economic data released from the UK over the past week. Former Bank of England (BOE) and MPC (monetary policy committee) member Kate Barker was quoted in an article suggesting she believes the markets have got it wrong in regard to the potential timing of a BOE interest rate hike. She thinks markets have push expectations out too far. She said if the Fed doesn’t move it will make it harder for the BOE to hike, but assuming a December Fed tightening, then you’re looking at somewhere between February and May for a UK move. Wage outcomes in the UK are certainly supporting the prospect of an interest rate hike in the first half of 2016. On October 1st the minimum wage in the UK is going up but a number of big companies have already said they will be raising wages above the impending minimum. Starbucks and supermarket chain Lidl are just two of the latest firms to confirm wage rises and this is a sure sign of growing confidence not only in their businesses but also the broader economy. It will also help underpin inflation heading into 2016. Over the coming days we will hear from BOE Governor Carney himself along with data on the current account, consumer confidence, GDP, manufacturing PMI and construction PMI.
Japan
The Bank of Japan’s (BOJ) 2% inflation target is proving very difficult to achieve. Data released on Friday shows the core consumer price index dipped by 0.1% from its level a year earlier in August. The core index measures inflation for a range of items including fuel costs but excluding fresh foods. The decline is the first seen for more than two years. Another measure of inflation, the headline consumer price index did increase by 0.2% from last August, but was flat month-on-month from the July level. Taking fuel costs out of the equation does improve the picture somewhat, but even then the BOJ still has a long tough road to reach it target. Governor Kuroda said the CPI data, ex energy, is positive, but that they will continue easing until 2% inflation is stable. He expects inflation to move around 0.0% for now, and hopes the government continues to take steps to boost Japan’s growth potential. Kuroda is also trying to put pressure on businesses to raise wages more aggressively, suggesting a failure to do so risks the bank missing its 2% target. He has said growth in capital spending and wages is ‘lacklustre in light of record profits’. Over the coming days we have data on retail sales, household spending, and unemployment along with the quarterly Tankan survey.
Canada
The only data of note over the past week from Canada was retail sales figures released last Thursday. The headline number showed a small improvement as expected, but it was mostly driven by autos. Stripping automotive sales from the data left the core reading at flat. This week we have the key release of GDP data for July. Canada entered a technical recession in the first half of this year, with two quarters of negative growth, but forecasts are for a turnaround in the third quarter. The market is expecting July GDP to come in at 0.2%, which if continued over the rest of Q3 would equate to annualized growth of somewhere between 1.5% and 2.0%. The Bank of Canada (BOC) certainly believes the worst of the oil price shock is behind them and that solid growth in the US will continue to support Canadian exports.
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Ian Dobbs is a currency analyst with Direct FX You can contact him here »
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