By Ian Dobbs*:
The Australian dollar is winning the race higher seen so far this month amongst the key major currencies that have commodity exposures.
The gains against the USD from last week’s lows reached over 5.3% during trade overnight. It managed to outpace even those of the CAD, which itself has rallied around 2.4% against the USD from its lows seen near the start of last week.
The AUD/USD levels have not been seen since July last year and come in an environment where many commodities have now enjoyed huge gains from their recent lows over the last few trading sessions.
Oil prices are now on the cusp of recouping all their falls seen in 2016, whilst iron prices which rallied 19% overnight posted their largest gain on record.
The latest surge comes after the Chinese Premier announced a higher Chinese growth target in the range of 6.5-7.0% for this year, higher than that forecast by many economists.
Chinese credit data for January showed a surge in total lending to the economy to a record $US 520 billion. These factors when combined with a pledge to provide further stimulus if required means the prices for key commodities (and commodity currencies) looks to now have finally turned the corner.
Major Announcements last week:
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NZ Building Permits, -8.2% (Jan.)
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Japanese Industrial Production, +3.7% m/m vs. 3.3% exp. (Jan.)
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US Chicago PMI, 47.6 vs. 53.0 exp. (Feb.)
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Australian Building Permits, -7.5% m/m, vs. -2.0% exp. (Jan.)
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China NBS Manufacturing PMI, 49.0 vs. 49.3 exp. (Feb.)
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Australian Cash Rate, 2.00% as exp.
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Canadian Q4 GDP, 0.8% q/q vs. 0.0% exp.
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US ISM Manufacturing PMI, 49.5 vs. 48.5 exp. (Feb.)
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NZ GDT Dairy Auction +1.4%
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Australian Q4 GDP, +3.0% y/y vs. 2.5% exp.
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UK Markit Services PMI, 52.7 vs. 55.1 exp. (Feb.)
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Australian Retail Sales, +0.3% m/m vs. +0.4% exp. (Jan.)
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US Non-farm payrolls employment, +242k vs. +190k exp. (Feb.)
NZD/USD
The New Zealand dollar is trading firmly in trade this week against the USD. However the performance to some extent has lagged given the extremely strong showings seen by the CAD and the AUD. The sentiment towards the commodity currencies comes against the back-drop of strong gains in key commodities including oil and iron ore, the latter jumped a staggering 19% during trade overnight. Sentiment towards the NZD/USD this week will again be dictated by moves in the commodity space especially in the lead-up to the RBNZ monetary policy meeting on Thursday. Some resistance ahead of the key .6900 level has formed ahead of .6820 in recent hours. We favour further gains being tough from here given the RBNZ risk and relative underperformance of the NZD against the other commodity currencies.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / USD | 0.6781 | 0.6750 | 0.6900 | 0.6574 - 0.6819 |
NZD/AUD (AUD/NZD)
The New Zealand dollar has fallen sharply against the Australian dollar again in trade so far this week. The move is a continuation of the theme from last week which was set amidst an environment of sharply rallying key commodities which have an influence on the AUD. This continued in overnight trade after the price of iron ore jumped 19%, the largest on record. A strong Australian GDP print last week has also added to the positive AUD momentum. Commodity price considerations and the RBNZ meeting are the key influences to consider this week. We favour selling NZD rallies, although the sharp recent declines mean better entries nearer .9200 (1.0870) are possible should commodities prices contract or should the RBNZ deliver a more upbeat tone than that expected.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / AUD | 0.9087 | 0.9050 | 0.9200 | 0.9068 - 0.9289 |
| AUD / NZD | 1.1004 | 1.0870 | 1.1050 | 1.0766 - 1.1028 |
NZD/GBP (GBP/NZD)
The New Zealand dollar has drifted lower against the U.K. pound in trade so far this week. This comes on the back of the relatively disappointing performance seen overnight by the NZD in light of the strong gains experienced by the other key commodity based currencies. Caution ahead of Thursday’s RBNZ central bank meeting may be partly to blame for the NZD’s inability to join in the latest rally, although New Zealand’s relative lack of exposure to the key commodities which are surging is also likely to be a reason. The NZD would appear to need a boost from the RBNZ this week in order to avoid a further retracement against the GBP. Support beyond .4700 (2.1277 resistance) is seen at .4650 (2.1505 resistance).
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / GBP | 0.4755 | 0.4700 | 0.4800 | 0.4706 - 0.4799 |
| GBP / NZD | 2.1029 | 2.0833 | 2.1277 | 2.0840 - 2.1247 |
NZD/CAD
The New Zealand dollar has drifted lower against the Canadian dollar since our last report, although not before setting highs head of .9120. The latest down-move has again occurred on the back of the theme of a CAD which has enjoyed the tailwind of a strong lift in the oil price. Oil prices have now advanced around 45% from the recent lows. Central bank meetings from both countries and Canadian employment data are the other key events to consider this week. We continue to favour big picture gains for the CAD against the NZD, although periods of a consolidating oil price should offer opportunities to sell strength.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / CAD | 0.9016 | 0.8990 | 0.9120 | 0.8857 - 0.9114 |
NZD/EURO (EURO/NZD)
The New Zealand dollar is drifting in recent trade against the Euro. The commodity based gains from last week have so far failed to be added on this week. This comes on the back of the relatively disappointing performance of the NZD/USD exchange rate in trade overnight which failed to get a lift from the sharp rally which was noted in many commodities. Central bank meetings from both regions are in focus this week, caution ahead of the RBNZ meeting will have no doubt tempered the enthusiasm for buying the NZD overnight in advance of such a key event.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / EUR | 0.6157 | 0.6100 | 0.6200 | 0.6057 - 0.6201 |
| EUR / NZD | 1.6243 | 1.6129 | 1.6393 | 1.6127 - 1.6511 |
NZD/YEN
The New Zealand dollar has rallied against the Japanese Yen since our last report on Friday, although the gains have tempered from the highs which were seen towards the close of weekly trade. The strong gains last week were driven by the renewed appetite for currencies with a commodity exposure, although so far this week the NZD has failed to enjoy the additional lift that the other key commodity currencies (like the AUD and CAD) have experienced. Some tension ahead of this week’s key RBNZ central bank meeting is likely to blame, although New Zealand’s relative under exposure to the commodities that have enjoyed most of the recent gains is also important.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / YEN | 76.90 | 76.50 | 77.70 | 74.00 - 77.81 |
AUD/USD
The Australian dollar has continued to surge since our report on Friday, reaching levels last seen in July (2015) during trade overnight. The move has again been based on the back of the demand for currencies with exposure to key commodities such as oil, copper and iron ore. The latter posted a record 19% jump during trade overnight. Australian GDP data has also played a part in the rise. Data considerations which are light will take a back seat to the commodity influence this week. We strongly favour buying dips at present (near .7400), although some caution is needed after the huge recent advance.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / USD | 0.7459 | 0.7390 | 0.7535 | 0.7111 - 0.7484 |
AUD/GBP (GBP/AUD)
The Australian dollar has extended on its gains against the U.K. pound since our report on Friday. An additional ~1% lift has been seen so far this week and has occurred after the AUD/USD rose to its highest level since last July during trade overnight. Again it has been on the back of the influence of large gains in the key commodities which Australia has an exposure to (including iron ore which rose 19% overnight). Resistance is seen initially at .5265 (1.8993 support). Data considerations this week will take a firm back-seat to the influence of commodity moves and its effect on the AUD. Brexit discussion in a speech by the BoE Governor tonight is also worth noting.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / GBP | 0.5230 | 0.5100 | 0.5300 | 0.5102 - 0.5261 |
| GBP / AUD | 1.9122 | 1.8868 | 1.9608 | 1.9009 - 1.9602 |
AUD/EURO (EURO/AUD)
The Australian dollar has continued to rally against the Euro in trade this week. Once again it has been the AUD’s exposure to key commodities which have enjoyed large gains in recent trade which has been driving the move. The Q4 Australian GDP report provided additional impetus last week although Australian data considerations are unlikely to play a part in pricing this week. The ECB meeting on Friday morning is the next event to note. We favour buying on pull backs within a broader AUD rally, although the risk of an ECB stimulus disappointment adds to the potential for a more considerable retracement for the AUD against the EUR in the short term.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / EUR | 0.6769 | 0.6700 | 0.6800 | 0.6534 - 0.6802 |
| EUR / AUD | 1.4772 | 1.4706 | 1.4925 | 1.4701 - 1.5305 |
AUD/YEN
The recent gains experienced by the Australian dollar against the Japanese Yen have continued in trade since our report on Friday. These gains have once again been predominantly driven by the rally in the AUD which is occurring on the back of surging key commodity pricing. Stable equity markets are also a factor (risk +), although a considerably less one when viewed against the context of some of the huge moves seen in the commodities space. This theme looks set to dominate trade in this cross again this week. We cautiously favour further gains, but note the increasing risk of a sizable pull-back after the recent move.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / YEN | 84.52 | 83.85 | 85.00 | 79.83 - 85.00 |
AUD/CAD
The Australian dollar has managed to edge out marginal gains against the Canadian dollar since our report on Friday. Both currencies have put in strong respective performances against the USD on the back of the positive sentiment shown recently towards commodities and commodity currencies. The AUD has received an additional lift overnight on the back of the huge 19% rise which was seen in the price of iron ore. The BoC interest rate decision is an additional factor to consider for the cross this week.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / CAD | 0.9912 | 0.9850 | 0.9950 | 0.9602 - 0.9950 |
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Market commentary:
The Australian dollar is winning the race higher seen so far this month amongst the key major currencies that have commodity exposures. The gains against the USD from last week’s lows reached over 5.3% during trade overnight. It managed to outpace even those of the CAD, which itself has rallied around 2.4% against the USD from its lows seen near the start of last week. The AUD/USD levels have not been seen since July last year and come in an environment where many commodities have now enjoyed huge gains from their recent lows over the last few trading sessions. Oil prices are now on the cusp of recouping all their falls seen in 2016, whilst iron prices which rallied 19% overnight posted their largest gain on record. The latest surge comes after the Chinese Premier announced a higher Chinese growth target in the range of 6.5-7.0% for this year, higher than that forecast by many economists. Chinese credit data for January showed a surge in total lending to the economy to a record $US 520 billion. These factors when combined with a pledge to provide further stimulus if required means the prices for key commodities (and commodity currencies) looks to now have finally turned the corner.
Australia
The AUD has continued to rally strongly since our last report and has now reached levels not seen since last July in recent trade. The gains have continued to come on the back of the recent voracious appetite seen for commodity based currencies, a trend which began in earnest at the beginning of last week. This has seen the AUD/USD rally over 5% from last week’s lows. The strong commodities rally has been helped by a large rebound in the oil price which has now lifted ~45% from last month’s lows. Firming oil prices on Friday helped the CRB index lift 2.1% on the day. Price gains for Australia’s key commodities last week included +6.8% for copper, 9.5% for oil and 7% for iron ore. The highlight of the data out of Australia last week was the Q4 GDP report, this saw the annual pace of growth jump to 3.0%, well above the market’s expectations. Weaker data which included soft inventory and company profit numbers, and much weaker than expected building approvals numbers, failed to make any impact on the surging confidence displayed for the AUD. Riskier currencies like the AUD received additional support on Friday after the release of another strong U.S. employment report. This helped to keep global equities close out the week consolidating their gains. Look for commodity sentiment to again drive proceedings this week, especially given the low impact nature of the Australian data schedule which starts with business confidence numbers this afternoon.
New Zealand
The NZD continued higher last week to finish the week on its highs after the commodity currency buying continued as commodity prices continued their strong oil inspired gains on Friday. This saw the CRB index post a rise of 2.1%, the commodity rally was broad based after 16 of the 19 index component commodities rallied. The latest U.S. employment data released on Friday showed a continuation in the trend of strong payrolls growth in February. The data surpassed expectations and included positive revisions to the previous two months numbers. This when combined with stronger oil markets and a more positive outlook towards emerging markets allowed global equity markets to finish the week on a firm note. This provided additional support for riskier currencies like the NZD. Local data last week was light but included a small rebound in the latest dairy auction pricing and weaker than expected building approval and business confidence sentiment numbers. This week in New Zealand is dominated by the RBNZ interest rate decision on Thursday. The market expects rates to remain on hold at 2.5% for now, although the continued soft inflation outlook, when combined with weak dairy pricing and an uncertain global environment, should mean a strong signal is given for rate cuts over the months ahead.
United States
Trade in the USD has been mixed since our last report. This comes despite the release of another strong U.S. jobs report on Friday. The non-farm payrolls report beat expectations via the addition of 242k jobs in February, revisions to the previous two months added to its upbeat tone. Strong gains were observed in the retail and construction sectors, the former suggesting continued robust private consumption growth. The positive data was offset to some extent by a decline in average hourly earnings, although the large gain in low wage roles in the payrolls data had significant explanatory effect for this result. Other data released last week was mixed. Sharp falls in the Chicago PMI and pending home sales were noted as was a decline in the latest Dallas Fed manufacturing business index. The manufacturing and non-manufacturing ISM data topped forecasts however. It is a much quieter week in the U.S. this week, mortgage data will feature on Thursday prior to the weekly jobless claims numbers on Friday.
Europe
The positive momentum established last week for the EUR has continued again in trade so far this week. The rise comes on the back of the broad decline noted in overnight trade by the USD, this as commodity currencies (especially the AUD and CAD) posted strong gains on the back of the surge in pricing seen in key commodities. Data released overnight showed German factory orders coming in better than expected. The numbers come after last week’s positive surprise in the final read of the euro-zone composite and services PMI data. Other data released during the week showed a continuation of the weak inflation and employment situation throughout the euro-zone. The ECB meeting on Friday morning is the key focus for the EUR this week, although prior to this we have production data and the second read of the euro-zone Q4 GDP. Expectations for the central bank meeting are for another cut to the deposit rate and for additional changes to the bond buying program which will be aimed at sparking inflation.
United Kingdom
The strong rebound in the GBP which was observed last week has continued in trade so far this week. Strong gains by the commodity currencies and the EUR overnight have helped the USD lose ground in recent hours. This when combined with the spill-over from last week’s diminishing bearish Brexit sentiment has helped the GBP/USD to post a 3%+ bounce from its recent lows. The rally has come despite weaker than expected local data which included misses in all the key manufacturing/construction and services PMI indicators last week. The house price and mortgage data was more positive however. Halifax house price numbers for February showed an expansion of 9.7% over the previous year. Key events to watch for this week include a speech by BoE Governor Carney tonight on the Brexit to U.K. lawmakers. This is followed by tomorrow night’s manufacturing and industrial production numbers for January.
Japan
The JPY has consolidated in recent trade against the USD since our last report on Friday, although has held up well in recent trade despite the improvement seen in risk appetite. Trade on Friday was choppy but well contained after the release of a solid latest U.S. employment report which saw U.S. equities finish the week on a solid footing. Data released out of Japan last week was mixed. The industrial production numbers exceeded expectations, whilst both the construction orders and retail sales data were disappointing. The employment print showed an improvement in the latest unemployment rate. Data this week starts with GDP today, machinery tool and large manufacturing condition numbers are due later in the week. Comments from BOJ Governor Kuroda yesterday struck a familiar tone after he spoke of the stimulus program (with negative rates) as being likely to help inflation accelerate towards the 2% targeted level, well above the near zero levels experienced over the last year.
Canada
The theme for the CAD remains unchanged since our report on Friday, namely higher levels which have been driven by a continuation in the strong rally in oil which has now posted gains of around 45% since their recent February lows. The latest rally on Friday saw crude close the week up 9.5% and came amid continued positive sentiment over the willingness of key oil producer nations to curb the recent volatility (falls). Oil market data released on Friday showed the number of active oil rigs falling to their lowest levels since 2009. Canadian data releases last week included Q4 current account and raw materials price data which topped consensus forecasts. Manufacturing PMI numbers posted a small rise on the month prior. The key Q4 growth numbers grew more than expected, although showed an economy which had slowed significantly during the quarter. The Ivey PMI release on Friday (Canadian time) failed to meet expectations and posted a sharp drop from the month prior. Housing starts and building permits feature on the calendar this week, although the BoC interest rate decision (Thursday morning) and employment numbers on Saturday morning will form the key focus for the market (outside of oil developments).
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Ian Dobbs is a currency analyst with Direct FX You can contact him here »
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