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NZDUSD lost almost 200 points last week and is now trading at 0.6918; with the French elections this weekend, expect choppy European markets this week; soft US data releases lately indicate that the health of the economy may have been overstated

NZDUSD lost almost 200 points last week and is now trading at 0.6918; with the French elections this weekend, expect choppy European markets this week; soft US data releases lately indicate that the health of the economy may have been overstated

By Howard Willcox*:

Geopolitical risks continue to outweigh economic factors as market drivers, with the French elections, North Korea and US political machinations all contribution to the mix. The final poll for the French Presidency will be this Sunday and although the centrist candidate Macron is now expected to win, there remain a large number of undecided votes and right wing, anti-Euro Marine LePen has run a solid campaign. Look for choppy European markets in the run-up to the weekend.

We have continued to see softer US economic data over the last week and this gives weight to the argument that the health of the economy may have been overstated and that without bigger gains in productivity or labour force participation real GDP growth may only be marginally over the 2% level.  US Non-farm figures on Friday may clarify this. Expectations are for an increase of around 180K new jobs for April. Later

Later tonight March unemployment data for the Eurozone will be released, expectations are for the improving trend to continue with a drop from 9.5% last month to 9.4%, after a confidence survey last week indicated firms had increased their employment expectations.

The RBA policy decision later this afternoon is expected to keep interest rates on hold, with previous minutes indicating that the RBA’s attention remains on  labour and housing markets, stronger job gains in March have strengthened the Bank’s “on hold” view. For NZ, tonight’s GDT dairy auction should result in higher prices according to the dairy futures market.

Major Announcements last week:

  • US Consumer Confidence 120.3 vs 123.7 expected
  • Australian CPI 0.5% vs 0.6% expected
  • Canadian Core Retail Sales -0.1% vs -0.2% expected
  • Bank of Japan leaves rates unchanged at -0.10%
  • ECB leave rates unchanged at 0.00%
  • US Core Durable Goods Orders -0.2% vs 0.4% expected
  • UK GDP 0.3% vs 0.4% expected
  • Canadian GDP 0.0% vs 0.1% expected
  • US GDP 0.7% vs 1.3% expected
  • US ISM 54.8 vs 56.6 expected

NZD/USD

The New Zealand dollar has had a choppy week, falling to a low of 0.6846 against the USD, a level not seen since last May. This move down was all offshore driven as changes to the Canadian lumber and dairy imports were seen to have potential to affect the NZ trading situation so offshore investors sold the NZD. It has since recovered to 0.6930 and a push back over 0.7000 after the US payroll figures now looks possible. Fundamentals remain positive and NZD supportive.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6918 0.6900 0.6975 0.6849 - 0.6992

NZD/AUD (AUD/NZD)

The New Zealand dollar has bounced back against the Australian dollar after a 0.9145 low last night. It is now trading at 0.9185 vs AUD with potential to push back over 0.9200. Today’s RBA statement may provide direction for such a move. We see the risks for the pair now back on the topside.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9174 0.9100 0.9200 0.9145 - 0.9254
AUD / NZD 1.0899 1.0870 1.0989 1.0806 - 1.0935

NZD/GBP (GBP/NZD)

The New Zealand dollar has fallen against the UK Pound over the last week from 0.5518 to 0.5298. It has staged a minor recovery to the 0.0.5368 level and should consolidate around current levels ahead of the US jobs data on Friday. The GBP is favoured on this cross as long as GBP data remains supportive. As the UK election date approaches (June 8th) expect some choppy moves.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5362 0.5300 0.5420 0.5297 - 0.5471
GBP / NZD 1.8651 1.8450 1.8868 1.8278 - 1.8880

 NZD/CAD

Choppy trading on this cross ranging over a 0.9504 - 0.9315 range for the week as the Canadian dollar was hit by trade tariffs for timber imposed by the Trump administration. It’s now sitting around 0.9460 the New Zealand dollar is favoured on this cross and we see potential for a move back to the 0.9500 level over the week.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9455 0.9300 0.9500 0.9321 - 0.9477

NZD/EURO (EURO/NZD)

The New Zealand dollar has been knocked as the EUR spiked after the first round of the French election, dropping from 0.6576 to 0.6274. It is now around 0.6347 after a rally overnight and may push back over 0.6400 after the dairy auction results (if positive) and employment data tomorrow.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.6341 0.6250 0.6400 0.6274 - 0.6437
EUR/NZD 1.5768 1.5525 1.6000 1.5535 - 1.5938

NZD/YEN

The New Zealand dollar has rallied from 76.11 last week back to 77.58, currently trading around 77.48 , is marking time but has potential to extend gains to the 77.80/90 mark ...tomorrow's NZ jobs data may help .

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 77.44 76.00 77.90 76.14 - 77.61

AUD/USD

This pair has suffered as offshore investors sold the Australian on the move away from commodity currencies on the back of the Canadian trade tariffs. It made a low of 0.7438 last week but has now clawed back to the 0.7545 level, look for consolidation around current levels heading into Friday's US jobs data.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7541 0.7440 0.7600 0.7441 - 0.7563

AUD/GBP (GBP/AUD) 

Choppy trading for the Australian dollar vs the UK Pound but in a relatively confined 0.5760-0.5923 range for the week. Now back around 0.5842 and should within 40 points either side of this level for the next day or so ahead of Friday’s US data. The GBP is favoured on this cross.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5846 0.5760 0.5950 0.5759 - 0.5914
GBP / AUD 1.7106 1.6807 1.7361 1.6910 - 1.7364

AUD/EURO (EURO/AUD)

The Australian dollar had traded in a narrow 0.6969-0.6826 range against the Euro over the week. It is now back at 0.6908, but with better economic data and a win for Macron in the French elections the EUR should be favoured on this cross.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6909 0.6800 0.6980 0.6826 - 0.6958
EUR/AUD 1.4474 1.4326 1.4706 1.4373 - 1.4650

AUD/YEN

The AUD has been as low as 82.72 over the week , is now back around 84.32 and looks solid for a push to the 85.00 mark...may need the US data out of the way before an attempt is made...look for consolidation slightly above current levels..

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 84.37 82.70 85.00 82.74 - 84.51

AUD/CAD

The AUD has held well against the CAD over the week moving higher from 1.0116 to 1.0310, it is currently back a little at 1.02920 , but a move to previous highs at 1.03315 last seen on 20th March looks likely given uncertainty over Canadian US exports.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 1.0302 1.0120 1.0330 1.0121 - 1.0314

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Market commentary:

Geopolitical risks continue to outweigh economic factors as market drivers, with the French elections, North Korea and US political machinations all contribution to the mix. The final poll for the French Presidency will be this Sunday and although the centrist candidate Macron is now expected to win, there remain a large number of undecided votes and right wing, anti-Euro Marine LePen has run a solid campaign. Look for choppy European markets in the run-up to the weekend.

We have continued to see softer US economic data over the last week and this gives weight to the argument that the health of the economy may have been overstated and that without bigger gains in productivity or labour force participation real GDP growth may only be marginally over the 2% level.  US Non-farm figures on Friday may clarify this. Expectations are for an increase of around 180K new jobs for April.

Later tonight March unemployment data for the Eurozone will be released, expectations are for the improving trend to continue with a drop from 9.5% last month to 9.4%, after a confidence survey last week indicated firms had increased their employment expectations.

The RBA policy decision later this afternoon is expected to keep interest rates on hold, with previous minutes indicating that the RBA’s attention remains on  labour and housing markets, stronger job gains in March have strengthened the Bank’s “on hold” view. For NZ, tonight’s GDT dairy auction should result in higher prices according to the dairy futures market.

Australia

Market focus is on the RBA statement later this afternoon, and although an “on hold” outcome is widely forecast the market will be looking for any change of view on the domestic economy given the stronger employment data last month and whether the RBA provides any new views on the exploding housing market. The better manufacturing activity reported for April saw the AUD recover back over the 0.7500 level against the USD yesterday and it has managed to hang onto gains currently around 0.7540. However, given an “on hold” decision by the RBA the path for the AUD is likely to see a continuation of the weakness seen over the last week as monetary policy diverges from that of the US Fed Reserve and more general economic data remains soft.

New Zealand

The New Zealand dollar continued to drop in value late last week falling to a low of 0.6850 and closing the week out just shy of 200 points lower. Monday US personal spending and personal income date came out better than expected but PMI and construction spending was disappointing, this kept the kiwi bid pushing back above 0.6900. With the NZ dollar seen as a commodity currency we may see further weakness with speculation around the US government imposing restrictions on imported products into the United States, this may indicate tighter restrictions on NZ businesses exporting products. Tomorrow we have local employment figures to be released with expectations around the unemployment rate to be around 5.1%. Friday sees quarterly inflation expectations. Short term support 0.6850 and resistance 0.7060

United States

Politics continue to dominate the US markets with inaction continuing around the position of tax cuts, infrastructure spending, health care changes, trade agreements and of course that key Trump policy piece, “the wall”. Given all these uncertainties however US equity markets continue to hold firm and last night saw technology stocks make new highs amid optimism over corporate results, while major indexes ended mixed on tepid economic data and comments by President Donald Trump on banking structure. Markets also were jumpy after Trump’s interview with Bloomberg, as he suggested raising the gasoline tax to fund infrastructure and reintroducing rules that keep commercial and investment banking operations separate. Overall however the US economy appears to be continuing to recover and the Fed appears still to be on course for another rate hike at its June meeting. This expectation should continue to underpin longer term USD strength against most of its trading partners.

Europe

All about the French elections this Sunday, the outcome of which will cement  the foundations for the EU, for the meanwhile that is, on a Macron win and is essential for stability in markets. The current polls are around 61% to 39% in favour of Macron. ...The EUR has enjoyed a solid rally after the results of the first poll and this has been helped by economic statistics showing better results across several of the Eurozone regions….The ECB kept rates on hold at last week's meeting….but more positive results are expected for the Euro area flash Q1 GDP (Wednesday): look for the first reading of euro area Q1 GDP to climb 0.6% q-o-q from 0.5% q-o-q in Q4. Domestic consumption is expected to maintain its recent strong momentum and exports to recover. If regional growth data continue to improve, we may not have to wait too long before the ECB indicates a change in its policy stance. We expect the ECB to announce a tapering of the QE programme at the September meeting for enactment at the start of next year….this should limit EUR downside.

United Kingdom

The UK markets continue to be focused on the dual issues of the General election on June 8th and the frayed relationship with the EU as Brexit negotiations start to ramp up. These political fundamentals have been to the fore over the last few days, with a disputed version of the meeting held between PM May and EU Commission president Juncker last week. Brexit headlines will be moving the pound and cross from here on. The German press reported that Juncker told Chancellor Merkel that May showed no willingness to compromise and had “unrealistic expectations” about how Brexit negotiations would proceed. However, PM May’s office said it did not “recognize” this account of the meeting which it said were “constructive”. Look for more of these ‘fun & games” after the election when negotiations will begin in earnest. The GBP has risen substantially since the election was announced, on the assumption that the incumbent Conservative government will be re-elected with an increased majority and hence make Brexit negotiations more straightforward. Also helping the stronger GBP is the better performance of the UK economy, with figures out last week showing a fall in the UK deficit to 2.6% of GDP,  levels last seen at the start of the financial crisis in 2008. We remain positive on the GBP economic fundamentals dominate over its Eurozone neighbours.

Japan

The Japanese yen has shown broad weakness over the past week pushing through the 111.50 resistance level against the USD on Monday. Japanese Final Manufacturing PMI published weaker than expected at 52.7 yesterday adding to the slide- weakening further the past 5 out of 6 trading days. JPY Movement this week will be limited to US action as Japan have holidays Wednesday and Thursday this week with no major data announcements. Technically we see lower highs and lower lows based on the high of 118.50 and at 108.20 low showing the overall bearish trend is still in place. We have large resistance at 112.00 based on the 50% move of the recent high of 115.40 and the low of 108.40 suggesting JPY may make a potential reversal push back towards the low of 108.00

Canada

The Canadian dollar continues to loose support as it continues to trade above key level of 1.3650 to a 15 month low. Monday saw stronger manufacturing data released giving the CAD a boost but this was only temporary. With Oil prices still low down this week around 1% to 48.70 this continues to put strain on the Canadian Dollar as it has depreciated over 4 cents since mid- April. Later this week we have Trade Balance figures releasing which may give the CAD some much needed support leading into Bank of Canada Governor Polaz talks on Friday. On the chart we have very thin air post 1.3700 through to the previous high of 1.4650 of January 2016, unless we see a shift we may see 1.40 come into play.

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