By Ian Dobbs*:
Markets expectations for a lift in US rates jumped last week after the release of the minutes to the latest April FOMC meeting.
Comments from the majority of the Fed members who have spoken in recent weeks have warned over the market’s underestimation of Fed moves this year and last week’s minutes served as a notice that the Fed stands ready to act on moving rates in June should the data support.
To that extent the next employment report due on June 3rd looks to be pivotal to the decision, especially given that the Fed’s other criteria on inflation and GDP look likely to be satisfied.
Complicating the decision will be the UK’s Brexit vote scheduled just a week after the June meeting as several Fed officials have already indicated that it will be incorporated into their considerations.
This uncertainty when combined with the Fed voting members who appear to be more cautious than the full range of Fed meeting participants (many of whom are non-voting regional presidents who tend to be more hawkish) mean a hike should likely be deferred until July or later.
Major Announcements last week:
- Japanese Industrial Production, 3.8% m/m vs. 3.6% exp. (Mar.)
- UK Inflation, 0.1% m/m, vs. 0.3% exp. (Apr.)
- US Inflation, 0.4% m/m vs. 0.3% exp. (Apr.)
- NZ GDT Dairy Index, +2.6%
- Japanese Preliminary Q1 GDP, 0.4% vs. 0.1% exp.
- UK Claimant Count Change, -2.4k vs. 4.0k exp. (Apr.)
- EU Inflation, 0.0% m/m as exp. (Apr.)
- Australian Employment Change s.a., 10.8k vs. 12.5k exp. (Apr.)
- UK Retail Sales, 1.3% m/m vs. 0.5% exp. (Apr.)
- US Philly Fed Manufacturing, -1.8 vs. 3.5 exp. (May)
- Canadian Inflation, 0.3% m/m as exp. (Apr.)
- Canadian Retail Sales, -1.0% m/ vs. -0.7% exp. (Mar.)
NZD/USD
The New Zealand dollar is largely unchanged in trade since Friday having given up yesterday’s gains in overnight trade. An easing CRB commodity index and firm USD eroded the initial weeks gains. These came from a firming AUD and move by a local bank yesterday to a ‘no change’ in rates by the RBNZ in June. Expect external influences to drive this week given the lack of local data. This has us continuing to favour trading within a .6700/.6850 type range on the week. We marginally favour selling towards .6850 for now.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / USD | 0.6750 | 0.6700 | 0.6850 | 0.6712 - 0.6842 |
NZD/AUD (AUD/NZD)
The New Zealand dollar has continued to firm against the Australian dollar since our report on Friday. Further gains have been seen on the back of a shift in a call on the June RBNZ rate move by a local bank (now no change) and from pressure on iron ore prices which have fallen to 10 week lows yesterday. Data releases out of either country look very unlikely to drive the next move this week so again look to commodity sentiment to have a strong influence. We favour buying AUD over NZD after the strong move up seen since late April.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / AUD | 0.9346 | 0.9250 | 0.9415 | 0.9254 - 0.9415 |
| AUD / NZD | 1.0700 | 1.0621 | 1.0811 | 1.0621 - 1.0806 |
NZD/GBP (GBP/NZD)
The New Zealand dollar has lifted against the UK pound since our report on Friday. Losses came last week on the back of polls that showed a shift in favour of the UK remaining in the EU. However, much of the GBP gains have eroded since on the back of comments from a BoE member later on Friday which suggested the UK’s economic issues extended well beyond Brexit concerns. We favour selling NZD and buying GBP overall. UK GDP data on Thursday is the only real economic event of interest this week. Second resistance is set near .4735 (2.1119 support).
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / GBP | 0.4661 | 0.4595 | 0.4685 | 0.4598 - 0.4726 |
| GBP / NZD | 2.1454 | 2.1345 | 2.1763 | 2.1158 - 2.1749 |
NZD/CAD
The New Zealand dollar has continued to gain against the Canadian dollar since our commentary on Friday. Pressure on the CAD against the USD has remained in recent days despite oil prices remaining firm in recent trade (some losses from the highs have been noted). Canadian data on Friday was close enough to the expectations to cause little stir. Economic considerations will be dominated by Wednesday’s BoC rate decision (unanimous consensus of no change) and commentary. We favour buying the CAD over the NZD after the recent move up in the cross, although note the risk of an oil price correction based on the current extended speculative long positioning.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / CAD | 0.8874 | 0.8700 | 0.8930 | 0.8747 - 0.8929 |
NZD/EURO (EURO/NZD)
The New Zealand dollar is largely unchanged against the Euro since our last report. Highs in the interim ahead of .6070 (1.6474) were seen yesterday as the NZD rose on a stronger AUD and change in the June RBNZ rate call by a leading local bank (to no move). Data influences this week look unlikely to drive any sustainable move which leaves commodity and risk sentiment as the most drivers of direction. We lack any real bias on this cross presently given we are trading near the middle of recent bounds seen since early March. Strong resistance is pegged around .6200 (1.6129 support).
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / EUR | 0.6019 | 0.5900 | 0.6070 | 0.5987 - 0.6070 |
| EUR / NZD | 1.6615 | 1.6474 | 1.6949 | 1.6476 - 1.6702 |
NZD/YEN
The New Zealand dollar has eased against the Japanese Yen since our report on Friday. Losses come from a strengthening Yen in recent trade which has risen on better than expected trade data yesterday. Adding to demand were calls from the G7 at the weekend warning against intervention to weaken the JPY. Commodity currency weakness has pressured the NZD in recent hours and with a light data week from both countries it appears that external influences will be the drivers this week. We favour further consolidation this week (range bound trading).
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| NZD / YEN | 73.80 | 72.50 | 74.90 | 73.76 - 74.83 |
AUD/USD
The Australian dollar is largely unchanged against the USD since our report on Friday. Commodities and USD sentiment look to be the key drivers this week. This follows on from last week’s hawkish FOMC meeting minute notes, although today’s Q&A session after RBA Governor Stevens speech could excite. Momentum is still to the AUD downside for now, although the large declines in the last month suggest further moves lower will be much harder to come by. Resistance beyond the initial levels is noted around .7300 and .7400. A further support level below .7175 is pegged around .7100.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / USD | 0.7219 | 0.7175 | 0.7260 | 0.7178 - 0.7366 |
AUD/GBP (GBP/AUD)
The Australian dollar has managed to eke out further marginal gains against the UK pound since our report on Friday. The move comes on the back of falls in the GBP as BoE members struck cautionary comments on the UK economy during talks on Friday. The GBP proved to one of the few currencies to appreciate on the week against a USD which rose after more hawkish than expected US FOMC minutes. UK GDP numbers (Thursday) is the main data point for the cross this week. Momentum for the cross remains to the AUD downside, but this move lower looks extended to us.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / GBP | 0.4985 | 0.4900 | 0.5040 | 0.4914 - 0.5083 |
| GBP / AUD | 2.0060 | 1.9841 | 2.0408 | 1.9674 - 2.0350 |
AUD/EURO (EURO/AUD)
The Australian dollar has eased against the Euro since our report on Friday. Range trading has been the order of the day for this cross over the last two weeks and this again looks likely this week given the lack of critical incoming data from either region. Critical to holding the downside momentum will be the .6400 (1.5625) level however, as a break of this area looks likely to open significant downside. AUD and commodity sentiment are key to watch this week. Note the RBA Governor’s speech later today also.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / EUR | 0.6437 | 0.6400 | 0.6500 | 0.6416 - 0.6506 |
| EUR / AUD | 1.5535 | 1.5385 | 1.5625 | 1.5370 - 1.5587 |
AUD/YEN
The Australian dollar has again eased against the Japanese Yen in recent trade. The move this week has come on the back of better than expected Japanese trade data yesterday and comments from the G7 over the weekend which warned against Japanese intervention to weaken the JPY. Easing commodity prices, particularly so iron ore, have pressured the AUD in recent trade. Expect external events to drive the cross this week given the lack of critical data due from either country.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / YEN | 78.93 | 78.00 | 80.65 | 78.80 - 80.56 |
AUD/CAD
The Australian dollar has lifted marginally against the Canadian dollar since our report on Friday. The move comes as the CAD remains weak against the USD, although so far the price of oil has held up well in the face of a reduction in the supply constraint pressures and extended speculative long positioning. Data this week from either country lacks punch- so look to oil/commodities and the BoC rate review on Wednesday for fresh direction (no change in rates is expected). Momentum for now is to the upside, resistance beyond .9550 is pegged around .9650.
| DIRECT FX | Current level | Support | Resistance | Last wk range |
|---|---|---|---|---|
| AUD / CAD | 0.9491 | 0.9360 | 0.9550 | 0.9389 - 0.9511 |
-------------------------------------------------------------------------------------------------------------------------
To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.
--------------------------------------------------------------------------------------------------------------------------
Market commentary:
Markets expectations for a lift in US rates jumped last week after the release of the minutes to the latest April FOMC meeting. Comments from the majority of the Fed members who have spoken in recent weeks have warned over the market’s underestimation of Fed moves this year and last week’s minutes served as a notice that the Fed stands ready to act on moving rates in June should the data support. To that extent the next employment report due on June 3rd looks to be pivotal to the decision, especially given that the Fed’s other criteria on inflation and GDP look likely to be satisfied. Complicating the decision will be the UK’s Brexit vote scheduled just a week after the June meeting as several Fed officials have already indicated that it will be incorporated into their considerations. This uncertainty when combined with the Fed voting members who appear to be more cautious than the full range of Fed meeting participants (many of whom are non-voting regional presidents who tend to be more hawkish) mean a hike should likely be deferred until July or later.
Australia
The AUD has been in consolidation mode against the USD since our report on Friday. Local events of influence last week included the release of the minutes from the RBA’s last board meeting which were interpreted as suggesting that the RBA are no hurry to cut rates as they await further information on the economy. Data from last week on the jobs market however, showed a new record low in wages growth and increasing softness from last year’s strength in the monthly employment numbers which saw a decline in hours worked and fall in full time jobs. Other forward looking labour market indicators have been mixed and push the case for further easing. Last week’s US events and the resultant USD strength after the FOMC minutes saw the AUD press lows not seen in over two months after the Fed raised the stakes for a June hike. Looking out to the week ahead in Australia we have a speech from RBA Governor Stevens today (to the Trans-Tasman Business Circle) where the market will watch the Q&A session closely. Preliminary construction work for the March quarter on comes on Wednesday and Q1 estimates of business and planned investment for the coming year on Thursday.
New Zealand
Trade in the NZD has been particularly quiet since our last report on Friday. The theme continues that from last week which saw local events take a back seat to news in the US. Data of interest locally included a small lift the latest GDT dairy auction, the third rise in the last four auctions. Fonterra is set to update the market this Thursday confirming the poor 2015/16 payout of around $3.90 p/kg. It will also set its opening forecast for the 2016/17 season which is expected to be in the order of 20% higher than that prior. Dominating the week last week however, was the US FOMC minutes which lifted the USD as the statement was far more hawkish than that issued after the meeting in April. A hike in June now looks possible depending on the incoming data with particular focus being on the non-farm payrolls employment (4 June NZT) and retail sales (15 June NZT) data. This week looks set to be a quiet one locally with April trade numbers due on Wednesday and the budget on Thursday, therefore look for offshore influences to again dominate.
United States
The USD is drifting in trade since our report on Friday. The move consolidates gains from last week which were primarily led by the release of April’s FOMC minutes which raised the ante on a rate hike in June. Odds on a hike lifted considerably after the statement and now turns attention to the June employment and retail numbers (mainly the former) for satisfaction of the criteria to move. Comments from Fed members came again overnight and backed those of last week which echoed the theme of June being a ‘live’ meeting. Data released during the week included weak NY Empire and Philly Fed manufacturing releases, a lift in small business optimism and building permits which missed the consensus. Inflation numbers for April edged higher towards the 2% target, whilst industrial production for the same month easily outstripped the consensus. Manufacturing PMI data released overnight which missed expectations, failed to excite as focus continued to remain on Fed talk and the discussion on rates. Further speeches are scheduled from Fed members this week (including chair Yellen on Friday), whilst data releases include durable goods orders on Thursday and preliminary Q1 GDP data on Friday amongst others.
Europe
The EUR has had a quiet start to the week so far against the USD. Moves last week were dominated by the stronger USD sentiment which rose after the release of the FOMC minutes to the April meeting. The ECB minutes passed without much fanfare, although were more optimistic over the euro-zone economy. However, concern remained high over the low inflation levels and its effect on wages. Data released last week was slight. Euro-zone inflation numbers for April remained unchanged, whilst Friday’s euro-zone current account numbers for March beat expectations. Preliminary PMI numbers for the euro-zone released overnight all disappointed. The German PMI data all exceeded expectations- as did the French composite and services prints. French manufacturing however, continued to weigh on the series as it remained in contraction territory. ZEW sentiment data is set for release today whilst tomorrow sees the release of the German IFO business climate data and Italian industrial numbers, all of which would appear unlikely to outweigh the overall USD sentiment.
United Kingdom
The GBP has reversed some of the solid gains seen against the USD from last week since our report on Friday. The move lower comes on the back of comments from BoE officials on Friday which suggested the economic slowdown could be broadening beyond the fallout from the risks posed by a Brexit. Adding to the pressure were further comments that the BoE should be ready to ease if the economic data didn’t turn after a ‘remain’ vote. Earlier moves in the GBP last week were dominated by polls which showed a further shift in favour of the UK remaining within the EU; this led to the GBP being the only major covered by us to appreciate against the USD on the week. Data released during the week included a disappointing inflation outturn and better than expected labour market data- which saw average earnings firm 2% y/y. Retail sales numbers were very healthy in April whilst the CBI Industrial trends orders numbers released on Friday firmed from the month prior. This week is set to be relatively quiet on the data front in the UK with preliminary Q1 GDP data on Thursday being the only release of note.
Japan
The JPY has enjoyed solid gains against the USD to start the week. The move comes after a warning from the US at the G7 meeting over the weekend against intervening to weaken the Yen. Also of influence was trade data released yesterday, which easily beat economists’ expectations. The third trade surplus in a row was driven by imports which fell 23.3%, the biggest declines since October 2009 as lower energy prices contributed to the decline. The surplus was the strongest since March 2010 and came prior to the release of preliminary manufacturing PMI data for May, which came in under forecasts and extended the contraction seen since February. Sentiment towards the JPY last week was largely driven by offshore influences with the hawkish set of US FOMC minutes being the most prominent. Local data included stronger than expected Industrial Production and Q1 GDP numbers and core machinery orders numbers which showed a solid rebound from the month prior. Looking out to the end of this week we look forward to the release of local inflation numbers, expect USD sentiment to drive in the interim.
Canada
The CAD continues to remain under pressure against the USD in current trade. Supply outages continue to be supportive for the price of oil, although hedge fund long positions on NYMEX which are near the all time record levels of June 2014 (when WTI was ~$105/bbl), suggest that further near term gains may be hard to come by. The impressive reversal in the fortunes of the CAD in recent weeks (against the USD) continued last week as the USD advanced on a more hawkish than expected set of US FOMC minutes. Local data released during the week was dominated by the numbers which came on Friday. The headline inflation numbers lifted in line with expectations (1.7% y/y), although the core numbers were marginally higher than the consensus. The core retail sales data (ex. autos) marginally beat the decline expected, although the overall decline (headline) was larger than expected. However, neither release missed their target by enough to shift the USD focus and therefore their impact was limited. Focus for this week in Canada will be on the BoC interest rate decision on Wednesday where no move in rates is expected.
Daily exchange rates
Select chart tabs
-----------------------------
Ian Dobbs is a currency analyst with Direct FX You can contact him here »
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.