By Ian Dobbs*:
Look for another busy and volatile week in FX markets this week with central bank meetings from Japan, the US and the UK all due.
Later today will see the conclusion of the BoJ meeting in Japan. Consensus expectations are for no further stimulus from the BoJ, although some in the market think further stimulus is warranted given the large gulf between current and targeted Japanese inflation rates.
Later in the week the US FOMC meeting announcement will take centre stage. Expectations are also for a lack of move from the US Fed, although expect Fed Chair Yellen to say rate hikes are firmly on the agenda should the data remain resilient.
The BoE (UK) will round out the week’s central bank meetings on Thursday (UK time). Economists are unanimous in their expectations that the bank will leave both its bank rate and asset purchase target levels unchanged. The recent moves by the ECB may raise the pressure on the BoE to hint towards further quantitative easing however, especially given the recent deterioration noted in credit markets.
Major Announcements last week:
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Australia ANZ Job Ads, -1.2% (Feb.)
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Canada Building Permits, -9.8% m/m vs. -2.5% exp. (Jan.)
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Australia Home Loans, -3.9% vs. -2.3% exp. (Jan.)
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NZ Cash rate, 2.25% vs. 2.5% exp.
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Canada Cash rate, 0.5% as exp.
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US Initial Jobless Claims, 259k vs. 275 k exp.
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Euro-zone, ECB deposit rate, -0.4% as exp.
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Canada Employment Change, -2.3k vs. +9.0k exp. (Feb.)
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Canada Unemployment rate, 7.3% vs. 7.2% exp. (Feb.)
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UK Industrial Production, 0.3% m/m vs. 0.5% exp. (Jan.)
NZD/USD
The New Zealand dollar has fallen sharply against the USD so far this week, although not before rallying to highs around .6770 on Friday. The move up came on the back of further appreciation in commodity currencies after the CRB index gained 1% on the day, a move which was once again heavily influenced by stronger oil prices. Last week saw the NZD come under pressure on the back of the surprise decision by the RBNZ to cut interest rates to 2.25%. The bounce afterwards was stronger than anticipated in a large part thanks to the AUD/USD exchange rate which moved to highs just shy of .7600. The gains have since eroded overnight on the back of a correction lower in commodities. Expect more high volatility this week especially on Thursday over the FOMC and later NZ Q4 GDP announcements.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / USD | 0.6679 | 0.6620 | 0.6775 | 0.6623 - 0.6810 |
NZD/AUD (AUD/NZD)
Pressure on the New Zealand dollar against the Australian dollar has resumed again this week. The surprise decision by the RBNZ to cut interest rates on Thursday last week has seen the local unit come under heavy selling pressure since, although the trend was well in place prior to the news. Thursday will be another key day for this cross with NZ Q4 GDP and Australian employment numbers slated for release. Commodity prices will continue to influence, their strong rally of late has seen investors’ heavily favour the AUD over the NZD in recent weeks. Watch the latest dairy price auction overnight tonight also. We favour lower levels targeting .8750 (1.1429) over time, the dataflow this week may allow for entries nearer first resistance though.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / AUD | 0.8886 | 0.8860 | 0.8970 | 0.8862 - 0.9124 |
| AUD / NZD | 1.1255 | 1.1148 | 1.1287 | 1.0960 - 1.1284 |
NZD/GBP (GBP/NZD)
The New Zealand dollar continues to trade with a weak tone against the UK pound in current trade. This is a continuation of the theme which was set after last week’s surprise move by the RBNZ to cut interest rates on Thursday. Some reprieve for the cross was noted on Friday as the NZD/USD followed the AUD/USD higher, this came on the back of a strong move higher again in commodities (CRB index +1%). This week we again look forward to more volatility, employment data is due from the UK tomorrow, whilst GDP data from NZ will follow on Thursday. The earlier FOMC announcement may also give cause for further commodity price volatility. First NZD support is seen at .4650 (2.1505 resistance), a break of here should open .4600 (2.1739) and .4550 (2.1978).
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / GBP | 0.4676 | 0.4650 | 0.4720 | 0.4652 - 0.4787 |
| GBP / NZD | 2.1387 | 2.1186 | 2.1505 | 2.0892 - 2.1495 |
NZD/CAD
The falling trend in the New Zealand dollar against the Canadian dollar remains well in place during trade this week. The move by the RBNZ to lower interest rates last week opened another leg lower for the cross which has been depreciating through all of 2016 so far. By contrast the BoC left Canadian interest rates on hold last week. We continue to heavily favour selling rallies in this cross based on the more positive outlook for oil. First resistance above lies in the .8940/50 area. Data of interest this week includes the NZ Q4 GDP report on Thursday and the end of week Canadian releases which include inflation and retail sales numbers.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / CAD | 0.8865 | 0.8585 | 0.8940 | 0.8780 - 0.9091 |
NZD/EURO (EURO/NZD)
The New Zealand dollar has managed to marginally recover against the Euro in trade since our last report. Last week was a poor one for this cross as it felt the full effect of differing take-outs from the respective central bank monetary policy decisions. The move by the RBNZ to cut came as a surprise to most which saw the NZD trade lower to near .5935 (high 1.6849). This very minor support level is again the target for the current slide. Friday’s bounce highs which came on the back of a stronger NZD/USD exchange rate (AUD/commodity price inspired) is immediate resistance. Dairy price data tonight is the first event of interest. NZ GDP data will feature after the FOMC meeting announcement on Thursday.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / EUR | 0.6018 | 0.5935 | 0.6050 | 0.5940 - 0.6193 |
| EUR / NZD | 1.6615 | 1.6529 | 1.6849 | 1.6148 - 1.6835 |
NZD/YEN
Expect the choppy trade seen by the New Zealand dollar against the Japanese Yen last week to continue again this week. Volatility should rise significantly later today over the BOJ monetary policy meeting press meeting and will continue later in the week, especially during the US FOMC meeting and NZ GDP number on Thursday. Look for the commodity and risk aversion themes to again have a strong influence also. A pick-up in commodity pricing and risk sentiment allowed the cross to rally to 77.00 on Friday. This level now forms first resistance, whilst support post the RBNZ decision has formed around 75.00. We favour selling rallies higher for those looking to transfer NZD to JPY.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / YEN | 76.02 | 75.00 | 77.00 | 75.03 - 77.00 |
AUD/USD
The Australian dollar has continued to advance against the USD since our last report, although sits well off its highs set near .7590 in trade yesterday. The gains through resistance at .7535 came later on Friday on the back of a further shift higher in commodity prices (CRB index +1% on the day). Overnight losses in oil and precious metals have seen the AUD move lower in recent trade. Look for another busy week this week especially on Thursday with both the US FOMC decision and Australian employment data due for release. Look for this afternoon’s RBA policy meeting minutes to shed some light on the minor change in wording noted in the recent March RBA cash rate statement. We favour buying dips near first support.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / USD | 0.7515 | 0.7390 | 0.7600 | 0.7411 - 0.7593 |
AUD/GBP (GBP/AUD)
The Australian dollar is trading higher in current trade against the UK pound since our last report. Further gains were seen on Friday after the cross moved notably lower earlier in the day on the back of strong advance which was seen by the GBP post the ECB meeting press conference (strongly EUR+). Friday’s recovery in the AUD was once again predicated on stronger commodity prices. The gains have moderated in recent trade on the back of the broader ~0.6% decline in the CRB index seen overnight. It will be a busy week for the cross this week. Today’s RBA minutes is the first event of note, tomorrow will see the release of UK employment data before the release of the Australian equivalent on Thursday. The BoE interest rate meeting will feature very early on Friday (NZ time).
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / GBP | 0.5261 | 0.5100 | 0.5300 | 0.5198 - 0.5293 |
| GBP / AUD | 1.9009 | 1.8868 | 1.9608 | 1.8893 - 1.9238 |
AUD/EURO (EURO/AUD)
The Australian dollar has moved higher against the Euro since our report on Friday. The AUD fell sharply early on Friday after the market latched on to ECB President Draghi’s comments over the unlikelihood of further cuts to the ECB deposit rate. Most of these losses have eroded however, on the back of the solid performance seen by the AUD/USD. This performance has once again been helped by improving commodity prices and supportive risk sentiment. Events to note for the pairing this week are the RBA minutes this afternoon and Australian employment data on Thursday. The US FOMC statement also on Thursday may have important considerations for commodity pricing also.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / EUR | 0.6770 | 0.6600 | 0.6800 | 0.6628 - 0.6910 |
| EUR / AUD | 1.4771 | 1.4706 | 1.5152 | 1.4472 - 1.5086 |
AUD/YEN
The Australian dollar has advanced strongly against the Japanese Yen since our last report. The move comes on the back of the lift which was seen in the AUD/USD exchange rate later on Friday after the CRB commodity price index rallied 1% on the day. The rally peaked around the late January 2016 highs at 86.40. This level now forms important resistance on the topside. Support is seen in the 83.10-83.35 zone. Today should be busy for this cross with both the RBA minutes and BoJ meeting announcements due. We lack any real bias from here on the next move.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / YEN | 85.52 | 83.85 | 86.40 | 83.37 - 86.41 |
AUD/CAD
The Australian dollar is largely unchanged against the Canadian dollar since our report on Friday. Positive momentum noted on Friday continued until well into yesterday on the back of the strong showing in the AUD/USD which peaked just ahead of .7600. The AUD/CAD advance failed to breach the weekly highs (1.0050) however, despite the release of worse than expected Canadian employment data late on Friday. Look to today’s RBA minutes as the first event of influence for the cross, events to note later in the week include Australian employment numbers on Thursday and Canadian inflation and retail sales numbers at the end of the week.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / CAD | 0.9972 | 0.9600 | 1.0050 | 0.9882 - 1.0052 |
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Market commentary:
Look for another busy and volatile week in FX markets this week with central bank meetings from Japan, the US and the UK all due. Later today will see the conclusion of the BoJ meeting in Japan. Consensus expectations are for no further stimulus from the BoJ, although some in the market think further stimulus is warranted given the large gulf between current and targeted Japanese inflation rates. Later in the week the US FOMC meeting announcement will take centre stage. Expectations are also for a lack of move from the US Fed, although expect Fed Chair Yellen to say rate hikes are firmly on the agenda should the data remain resilient. The BoE (UK) will round out the week’s central bank meetings on Thursday (UK time). Economists are unanimous in their expectations that the bank will leave both its bank rate and asset purchase target levels unchanged. The recent moves by the ECB may raise the pressure on the BoE to hint towards further quantitative easing however, especially given the recent deterioration noted in credit markets.
Australia
It has been a story of mixed fortunes for the AUD since our last report on Friday. Last week’s solid showing continued well into trade yesterday and came on the back of a continued solid appetite for risk currencies and currencies with exposure to commodities. Oil prices again led the charge on Friday, this saw the CRB commodity index close up 1% on the day. Crude prices were helped by an IEA report which said crude prices may now be on the path to recovery, a view which was based on shrinking supplies outside OPEC and disruptions from within the OPEC cartel. Prices (and the AUD) have lurched lower in trade overnight however, after Iran said it would shun a proposed production freeze and that it would increase production until it reached 4 million barrels per day (nearer pre-sanction levels). It is a much busier week for the AUD this week on the data front. This follows last week’s quiet release schedule which saw a drop in both the Westpac consumer sentiment index and the latest home loans data. Of immediate interest will be the minutes of the March RBA board meeting (this afternoon). Thursday will see the release of the February employment numbers, these are expected to show a gain of 12k jobs and steady 6% unemployment rate.
New Zealand
Offshore influences have dominated interest in the NZD since our last report. These influences helped the local unit recover on Friday after last week’s RBNZ inspired slump which saw the NZD fall notably after the surprise announcement of a move to cut interest rates to 2.25% (-25 bps). Two key factors were seen as the reasoning by the RBNZ to pre-empt the market; the more challenging global environment and the risks posed by falling inflation expectations. Post the RBNZ, the strong close to the week came on the back of a positive finish to global equities for the week and on the broad gains seen in commodities which saw the CRB index finish 1% higher on the day. This week has been a different story so far for the NZD which has declined in overnight trade, again on the back of a commodities influence. Weaker than expected Chinese numbers (retail sales and industrial production) released over the weekend had a more limited influence on trade; most notably so on the week’s open. Highlights for this week for the NZD will be the GDT dairy auction (tonight), current account data tomorrow, and the Q4 GDP release on Thursday (exp. +0.7% q/q).
United States
The USD has risen in trade overnight ahead of key data tonight and the all important FOMC interest rate decision on Thursday (NZ time). Last week was a particularly quiet one for the USD ahead of this week’s much busier schedule which starts with producer price and retail sales numbers tonight. Last week’s releases included an unexpected rise in wholesale inventories and a decline in initial jobless claims numbers for the week ended March 4. Expectations for this week’s FOMC meeting are for rates to remain on hold at 0.50% (6% probability of a hike only) and for Fed chair Yellen to keep open the possibility of rate hikes in coming months should the data remain buoyant. The strong labour market should ensure that their focus is on inflation, officials are likely to be more confident that annual inflation is tracking towards their 2% target. Additional insight will come earlier in the day after the release of the US inflation numbers for February.
Europe
The EUR has drifted lower in trade so far this week, although still sits significantly higher than levels that were observed running into last week’s ECB monetary policy announcement. This saw the Euro move sharply higher after president Draghi indicated that the ECB would not need to cut the deposit rate further following Friday’s 10 bps move (to -0.4%). Draghi emphasised other tools at his disposal however, a point which may have helped the Euro ease from its highs in recent trade. Data points of interest last week included better than expected German factory order and industrial production (IP) numbers, the overnight euro-zone IP release also exceeded the consensus forecast. Recent exit poll results from the weekend German regional elections suggest defeat for Chancellor Merkel in two out of three regional elections, a result which has been highly influenced by her support for an “open door” policy on refugee immigration. Dataflow for the euro-zone is light this week with inflation numbers on Thursday being the only real highlight.
United Kingdom
The GBP has drifted lower in trade so far this week. This comes in an environment which has seen the USD gain ground overnight on the back of more positive sentiment ahead of the FOMC announcement (Thursday morning NZ time). Last week was a quiet one for UK data, this saw the GBP take its lead from Brexit sentiment and a stronger EUR, which jumped after the ECB meeting. Data released during the week included weaker than expected industrial production numbers which underperformed on the back of the weak energy and mining sectors, the better than expected manufacturing numbers helped mitigate the extent of the miss however. Key events of interest on the calendar this week included the 2016 budget and employment data (tomorrow), and the BoE interest rate meeting policy announcement due for release on Friday (NZ time).
Japan
Trade in the JPY has been subdued since our last report, an understandable result in the lead up to this afternoon’s BoJ monetary policy announcement. Expectations for the decision are nearly unanimous. They include the decision to leave asset purchases unchanged at 80 trn yen per annum, and for rates to remain at -0.1% for excess balances held at the BoJ. The gap between the BOJ’s inflation target and their measure of current inflation has led some in the market to think more easing may occur, most likely through the form of another cut to the deposit rate. Data out of Japan last week included a slightly better than expected final read of Q4 growth and a weak consumer confidence print. Core machinery orders numbers released yesterday easily surpassed the market consensus, although failed to garner much market interest. Industrial production and capacity utilization numbers are due this afternoon, although expect them to take a major back seat to the BoJ monetary policy decision.
Canada
Fortunes for the CAD have been mixed since our last report. Prices finished last week on a firm note, although off their highs, after news that Canada’s job market had got worse as the unemployment rate hit a 3-year high at 7.3%. The employment change was worse than expected and included a large drop in the number of full-time positions. Other data from last week included a fall in building permits and miss in the new house price index data, although the housing starts number was better than that forecast. The central bank meeting saw the BoC leave rates on hold at 0.5% as expected, although the statement was more positive than many had anticipated. Oil influences have again been strong over recent hours. This has seen the CAD ease in trade overnight after Iran said it would snub the proposed country production cap. Look for the energy market influence to again be strong this week, key data will come at the end of the week (inflation and retail sales).
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Ian Dobbs is a currency analyst with Direct FX You can contact him here »
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