By Ian Dobbs*:
Central banks are once again in focus this week. This time it is the turn of the Canadian (BoC), UK (BoE) and Japanese (BOJ) central bank meetings to dominate the market’s attention.
Neither of the central banks is expected to move their rates from the present 0.5% setting, although the statements from both will be interesting. In the UK the BoE MPC continues to suggest that the next move in rates will be higher, whilst in the money market expectations for the next move are higher for a cut than a hike running into the start of 2017.
In Canada the difficult adjustment to lower energy prices continues, although the strong recent 0.6% m/m rise in January GDP supports a more cautiously optimistic central bank outlook.
For the BOJ it’s the pace of the strong recent rise in the Yen that presents a headache. This will keep the markets on high alert for any signs of intervention to stem the rise. However, for now the relative overall level of the JPY should keep them on the sidelines and out of the crosshairs of potential ‘currency war’ criticism that intervention might summon.
Major Announcements last week:
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Australian Retail Sales, 0.0% m/m vs. 0.4% exp. (Feb.)
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Australian Building Permits, 3.1% m/m vs. 2.0% exp. (Feb.)
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Australian Cash Rate, 2.0% as exp.
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EU Markit PMI Composite, 53.1 vs. 53.7 exp. (Mar.)
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UK Markit Services PMI, 53.7 vs. 54.0 exp. (Mar.)
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NZ GDT Dairy Price Index, +2.1%
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UK Manufacturing Production, -1.1% m/m vs. -0.2% exp. (Feb.)
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UK Industrial Production, -0.3% m/m vs. +0.1% exp. (Feb.)
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US Markit Services PMI, 51.3 vs. 51.0 exp. (Mar.)
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Canadian Employment, 40.6k vs. 10.0 k exp. (Mar.)
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Canadian Unemployment Rate, 7.1% vs. 7.3% exp. (Mar.)
NZD/USD
The New Zealand dollar remains range-bound against the USD in trade so far this week. A lack of important local and US data has been a factor in the moribund trade, although things should pick up later this week with US retail sales and inflation numbers due. Other factors to consider will be the level of demand for the JPY (against both the USD and NZD) and commodity/risk currency enthusiasm. For now we expect more range trading and have a slight bias to the NZ dollar topside.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / USD | 0.6861 | 0.6750 | 0.6962 | 0.6762 - 0.6878 |
NZD/AUD (AUD/NZD)
The New Zealand dollar has drifted slightly higher against the Australian dollar since our report on Friday. The dour trade in this cross comes on the back of data calendars out of both countries which have been very quiet. Australian employment numbers on Thursday should hopefully provide some excitement and will be followed by inflation data out of NZ on Monday next week. For now the cross appears to be in a slow grind for the NZD higher. Should the immediate nearby resistance break at .9040 (1.1062 support) we would again look to sell NZD near .9110 (1.0977).
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / AUD | 0.9037 | 0.8920 | 0.9040 | 0.8929 - 0.9047 |
| AUD / NZD | 1.1066 | 1.1062 | 1.1211 | 1.1053 - 1.1199 |
NZD/GBP (GBP/NZD)
The New Zealand dollar is largely unchanged in trade against the UK pound since our last report. This comes on the back of quiet event calendars, although the GBP did manage to shrug off weak Industrial and manufacturing production data on Friday. UK inflation numbers tonight are the immediate focus for the cross. We have little bias ahead of this data and expect immediate support and resistance to continue to bound the cross this week.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / GBP | 0.4820 | 0.4750 | 0.4860 | 0.4760 - 0.4857 |
| GBP / NZD | 2.0746 | 2.0576 | 2.1052 | 2.0588 - 2.1007 |
NZD/CAD
The New Zealand dollar has continued to fall against the Canadian dollar in trade since our last report. This comes on the back of the large rise in oil prices on Friday (WTI+6.6%) and strong employment data out of Canada which easily beat the consensus forecasts. Look for oil and the BoC interest rate decision (Thursday) to set the tone of trade this week. We continue to favour the CAD over the NZD while the oil price environment slowly improves. Note the Doha oil meeting this Sunday.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / CAD | 0.8859 | 0.8750 | 0.8890 | 0.8829 - 0.8969 |
NZD/EURO (EURO/NZD)
The New Zealand dollar has lifted marginally against the Euro since our last report. This comes on the back of quiet data calendars from both regions. The lift in trade this week has come largely on the back of the gains that have been seen in the commodity currencies and the CRB commodity index. Event calendars are again quiet this week so we see little chance of any material move beyond the range seen last week. Look for risk appetite and commodity moves (NZD) to drive trade, although European inflation reads may interest.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / EUR | 0.6012 | 0.5925 | 0.6145 | 0.5943 - 0.6021 |
| EUR / NZD | 1.6633 | 1.6273 | 1.6868 | 1.6609 - 1.6827 |
NZD/YEN
The New Zealand dollar has enjoyed some relief against the Japanese Yen since our report on Friday. This comes after the JPY enjoyed strong gains against the USD in the lead-up to Friday’s commentary. The moderate bounce in the cross has occurred after the JPY was unable to build on those gains (against the USD) any further since Friday. The NZD enjoyed a lift overnight from the positive commodity price momentum. Look for JPY demand and commodity prices to again set the tone of trade for the cross this week.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / YEN | 74.06 | 72.90 | 74.60 | 72.98 - 75.65 |
AUD/USD
The Australian dollar has lifted in trade against the USD since our report on Friday. The move comes mostly in recent hours after the overnight slide in the USD and support that was seen for commodity currencies in general, although strong oil price gains helped the AUD close well off its weekly lows on Friday. Key data events to watch this week include the Australian employment numbers (Thursday) and the earlier US retail sales. Later US inflation data will also interest. For now we favour buying dips (near .7500), a break of .7640 opens the way towards 2016 highs around .7725.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / USD | 0.7586 | 0.7480 | 0.7640 | 0.7495 - 0.7637 |
AUD/GBP (GBP/AUD)
The Australian dollar has eased against the UK pound in trade since our last report. The move comes despite the good support seen for commodity currencies overnight and the weaker UK data released later on Friday. Gains in the GBP (against the USD) have been the driver, although catalysts for the strong bounce aren’t obvious (although some overnight weakness in the USD has been noted). Look to UK inflation data tonight for immediate interest, other events to note are the Australian employment and BoE meeting, both on Thursday. We favour buying AUD dips on this cross overall.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / GBP | 0.5330 | 0.5300 | 0.5410 | 0.5294 - 0.5407 |
| GBP / AUD | 1.8762 | 1.8484 | 1.8868 | 1.8496 - 1.8890 |
AUD/EURO (EURO/AUD)
The Australian dollar has lifted moderately against the Euro in trade since our commentary on Friday. This comes on the back of the gains which have occurred in commodity currencies, gains which began on Friday as oil prices jumped 6.6%. We again look to the commodity market again for impetus this week, at least until the Australian employment data release on Thursday. We favour selling AUD rallies near first resistance at present
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / EUR | 0.6648 | 0.6550 | 0.6690 | 0.6580 - 0.6692 |
| EUR / AUD | 1.5041 | 1.4948 | 1.5267 | 1.4943 - 1.5198 |
AUD/YEN
The Australian dollar has managed to lift marginally against the Japanese Yen since our last report. This comes on the back of the rally seen in the AUD/USD exchange rate since Friday (commodity inspired) and comes as the JPY has consolidated against the USD. Look for this cross to again be vulnerable to any reigniting of the sharp moves higher in the JPY (against the USD) that were notable last week. Australian employment data on Thursday will be of interest, although should take a back seat to the broader theme of JPY demand (against the USD). We favour selling rallies around second resistance at 83.75.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / YEN | 81.89 | 79.50 | 82.50 | 80.79 - 84.53 |
AUD/CAD
The Australian dollar has continued to fall against the Canadian dollar since our report on Friday. This move comes on the back of the large rally in oil prices on Friday and strong Canadian employment data release. Both currencies are benefitting from rallying commodities, although Canada’s higher exposure to oil prices continues to hold sway at present for the general direction of this cross. Australian employment data on Thursday and the BoC interest rate decision earlier in the day are the notable scheduled events for the cross this week. We favour selling rallies, preferably towards .9900 if possible.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / CAD | 0.9796 | 0.9600 | 0.9850 | 0.9794 - 0.9970 |
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Market commentary:
Central banks are once again in focus this week. This time it is the turn of the Canadian (BoC), UK (BoE) and Japanese (BOJ) central bank meetings to dominate the market’s attention.
Neither of the central banks is expected to move their rates from the present 0.5% setting, although the statements from both will be interesting.
In the UK the BoE MPC continues to suggest that the next move in rates will be higher, whilst in the money market expectations for the next move are higher for a cut than a hike running into the start of 2017. In Canada the difficult adjustment to lower energy prices continues, although the strong recent 0.6% m/m rise in January GDP supports a more cautiously optimistic central bank outlook.
For the BOJ it’s the pace of the strong recent rise in the Yen that presents a headache. This will keep the markets on high alert for any signs of intervention to stem the rise. However, for now the relative overall level of the JPY should keep them on the sidelines and out of the crosshairs of potential ‘currency war’ criticism that intervention might summon.
Australia
The AUD has enjoyed a moderate lift in pricing since our last report on Friday. Much of the rise has come overnight and comes in an environment where commodity and commodity based currencies have again enjoyed sound gains. The lift began towards the close on Friday after the price of oil (WTI +6.6%) rose ahead of this weekend’s Doha meeting between OPEC and non-OPEC producers. Baker Hughes data which showed another decline in the number of actively deployed oil rigs also helped the positive oil sentiment. The global rig count has now fallen 60% in little over a year and sits at the lowest level since September 1999. The local event calendar was dominated last week by the latest RBA cash rate decision which again saw the RBA stand pat leaving rates at the present 2.0%. Retail Sales numbers were disappointing after they failed to lift from the month prior. Housing Finance numbers released yesterday enjoyed a solid lift in February as investor loans rose 4.1%, whilst owner occupier loans rose 1.5%, 0.5 % less than expectations. Look for the March employment release to dominate the calendar for the rest of this week where current expectations are for a gain of 18.5k jobs, the data is due for release on Thursday.
New Zealand
The NZD has lifted in trade since our report on Friday. The moderate lift has come on the back of an overnight rise in the CRB index and commodity currencies and fall in the USD. The economic calendar has been quiet in NZ of late which will again be the case this week. Of interest last week was the small rise seen in the latest dairy price auction (+2.1%) and weak NZIER business confidence survey. March retail card spending released yesterday showed an easing in spending on the month prior. This may reflect the waning confidence being experienced by many consumers in light of the conditions being seen in the agricultural sector. Other data set for release this week includes the latest Food Price Index and March business PMI data. These low ranking releases will once again ensure that the NZD derives its moves from offshore events which include US retail sales and inflation data later in the week.
United States
The USD has drifted lower in trade so far this week. Last week ended quietly on a lack of fresh data during a week which was dominated by the release of the FOMC minutes. The minutes provided a mixed response amongst the Fed members on the need for rate hikes and the durability of inflation. Data releases included a rise in ISM Non-Manufacturing PMI and jobless claims and consumer credit numbers, which both topped expectations. The data week this week will be dominated by retail sales and inflation numbers for March. Fed speak is set to continue again this week. This should ensure that once again the outlook for Fed policy remains a focus, although for now current expectations in the futures market place just a 15.7% chance of a hike in the Fed funds rate in June.
Europe
Trade in the EUR against the USD has largely languished since our report on Friday. Events of interest last week were dominated by the release of the ECB minutes which indicated the potential for further rates cuts if required. Governing Council members generally agreed that the outlook for inflation and growth had deteriorated since the December meeting. Concerns over the impact on bank earnings and the banking system’s stability were noted, especially should further rate cuts be necessary. Political pressure has mounted on the ECB in recent days after the German Finance Minister blamed ECB policies for a rise in the support for Germany’s right-wing Alternative for Germany Party. Data releases of note last week included weak German factory orders numbers and a decline in German Industrial Production. Euro-zone data included a fall in producer prices and lowering of the Service sector PMI read. Of interest this week will be the final inflation numbers for Germany today and the euro-zone on Thursday although attention is quickly turning to next week’s ECB meeting especially given the rhetoric over the recent ECB stimulus.
United Kingdom
The GBP has enjoyed a sharp change in fortune in trade against the USD so far this week. The rally comes at the expense of the USD, which has eased overall. The GBP gains have unwound much of last week’s Brexit falls and come ahead of tonight’s key UK inflation and retail price reads. Releases last week were initially dominated by the PMI reads which showed a flat print for the construction read and lift for the services number. The week concluded with the release of weak industrial production and trade data on Friday, which both disappointed. Manufacturing output also showed a sharp 1.1% fall m/m. Looking out to the remainder of this week we look forward to the BoE monetary policy meeting on Thursday. Expect a cautionary statement given the elevated concerns of a potential British exit from the EU and for rates to remain on hold at 0.5%.
Japan
The JPY remains in strong demand against the USD in trade this week. Data considerations have taken a back seat to sentiment in the market which has seen the JPY surge to 17 month highs in recent trade. The continued JPY strength saw Japanese stock prices remain under pressure in trade yesterday after having fallen over 7.5% over the previous two weeks (Nikkei 225). The falls have come largely on the back of the JPY’s recent gains. The recent surge in the JPY will likely test key officials resolve, although so far comments have been limited to ones which have said they are watching the market with vigilance and would take action if necessary. Data releases of interest last week included a lift in average cash earnings and improving current account numbers. Household confidence data beat forecasts whilst Core Machinery Orders data released yesterday confirmed the market’s expectations of a heavy fall from the month prior, although did manage to beat the number forecast. Look for a quiet week of Japanese data releases this week, although industrial production and capacity utilization data on Friday should be of some interest.
Canada
The CAD has enjoyed a lift in trade against the USD since our report on Friday. The move comes on the back of a strong Canadian employment release and a sharp lift in oil prices on Friday, which have again moved higher in trade overnight. Employment numbers released on Friday showed a 40.6k rise in March, more than four times that forecast whilst the unemployment rate also dropped against expectations of a flat result. Housing Starts data released just prior also managed to beat the consensus forecast. Data released earlier in the week included a miss in the Ivey PMI and strong Building Permits numbers. A sharp 6.6% lift in the WTI oil price on Friday ensured an 8% rise over the week. Friday’s rally was helped by Baker Hughes drilling rig data which again showed a fall in the number of rigs actively deployed in the US. Numbers deployed are less than 50% of that deployed a year ago. Globally the decline has reached 60% in little over a year and the global count is the lowest since September 1999. This week in Canada will be dominated by the BoC rate decision, expect rates to be held at 0.5%. Other releases of interest are the New Housing Price Index and Manufacturing sales numbers for February. Doha’s oil meeting between OPEC and non-OPEC producers on Sunday will dominate interest for the oil and energy markets.
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Ian Dobbs is a currency analyst with Direct FX You can contact him here »
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