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NZD trading at 0.7046 USD after hitting at a 2 month high of 0.7090, consolidation at current levels expected; AUD suffers as commodity prices struggle, NZDAUD traded at a 3 month high of 0.9524 last night

NZD trading at 0.7046 USD after hitting at a 2 month high of 0.7090, consolidation at current levels expected; AUD suffers as commodity prices struggle, NZDAUD traded at a 3 month high of 0.9524 last night

By Howard Willcox*:

Last week ended on a mixed note as although the S&P 500 closed on Friday at an all-time high, there was negative news, with Hong Kong receiving a credit rating downgrade from Moody’s from Aa1 to Aa2, this followed a cut, for the first time since 1989, in China’s debt rating on Wednesday. A shortened trading week due to the US Memorial Day holiday yesterday will give traders a lot to digest over a reduced period as a raft of economic data is released this week. Markets are pricing in an 80% chance of a Fed rate hike in June but as always data is key. Later tonight will bring US personal consumption expenditure index data, the central bank’s preferred gauge of inflation. Wednesday will bring initial jobless claims and ADP payrolls, a day later traders get manufacturing survey results, and the week culminates with monthly Non-Farm payroll data, the bright spot of the economy. These figures will help set expectations for whether the Fed will raise rates as Fed officials forecast back in March. With President Trump back in the White House after his overseas sojourn there is likely to be more ongoing drama (tweeted  or otherwise) , but markets are looking for refocusing on the Administration’s  tax and infrastructure polices to get back on track .

Major Announcements last week:

  • The Bank of Canada leave rates unchanged at 0.5%
  • UK GDP Second Estimate 0.2% vs 0.3% expected
  • US Core Durable Goods Orders -0.4% vs 0.4% expected
  • US Prelim GDP 1.2% vs 0.9% expected

NZD/USD

The New Zealand has put in a solid performance over the last few days as it continues to hold above the USD 0.7000 level. It is currently trading around 0.7050 after a two month high at 0.7090 last night. We expect consolidation at current levels as we head into crucial US data later this week It is attracting buying interest on dips but upside is limited until US data figures have been digested.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.7046 0.7000 0.7090 0.6989 - 0.7088

NZD/AUD (AUD/NZD)

The New Zealand dollar continues to outperform the AUD, making a 0.9524 high last night, the highest level in 3 months. It has eased back to the 0.9490 level but looks to have good support and we expect consolidation around current levels before another push towards 0.9525. NZ fundamentals remain supportive and outweigh the more negative Aussie economic fundamentals. Further detrimental Chinese data will weaken the AUD on this cross.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9487 0.9400 0.9525 0.9355 - 0.9531
AUD / NZD 1.0541 1.0498 1.0638 1.0492 - 1.0690

NZD/GBP (GBP/NZD)

The New Zealand Dollar has built on previous gains as the UK Pound succumbs to weaker data and a drop in polls for the Conservative government 8 days out from the election. It is currently around 0.5502 up from 0.5425 seen on Friday. Next stop is 0.5607, but we favour trading sub 0.5560 until some of this week's US data has been digested.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5494 0.5480 0.5560 0.5387 - 0.5521
GBP / NZD 1.8201 1.7985 1.8248 1.8111 - 1.8563

 NZD/CAD

The New Zealand dollar continues to build on its CAD gains, currently at 0.9492 down from 0.9533 seen overnight but the trend is a slow grind higher, immediate support is at 0.9450 but we look for a move back over 0.9500 in the next day or so.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9496 0.9450 0.9550 0.9419 - 0.9536

NZD/EURO (EURO/NZD)

The NZD has reasserted itself on this cross and is now around 0.6333 Euro, the immediate resistance level.  A break of this level would target 0.6400 but unlikely this will be threatened ahead of the US data over the next few days. New initial support is now at 0.6260.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.6333 0.6260 0.6400 0.6231 - 0.6338
EUR/NZD 1.5792 1.5625 1.5974 1.5777 - 1.6050

NZD/YEN

The New Zealand dollar is marginally lower against the Japanese Yen at 78.10 after a 78.90 high overnight. Immediate support is around 77.65, but really no clear direction in this cross at the moment, if it can hold the 78.00 handle a move back towards 78.40 is possible.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 78.16 77.65 78.50 77.90 - 78.91

AUD/USD

The Australian dollar has been having a tough time as commodity prices continue to remain soft and China news has mostly been negative. Currently trading around 0.7425 with initial support at 0.7405, if broken an extension towards 0.7365 is likely. We look for consolidation within 0.7390-0.7460 range over the next couple of days ahead of Fridays NFP data.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7423 0.7405 0.7470 0.7419 - 0.7517

AUD/GBP (GBP/AUD) 

We have seen flat trading for the Australian dollar against the UK Pound over the last few days, currently at 0.5793. It is still hanging below key resistance at 0.5825, although if the UK election continues to show the Government lead reducing the AUD may stage a comeback.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5792 0.5715 0.5825 0.5737 - 0.5824
GBP / AUD 1.7267 1.7167 1.7497 1.7169 - 1.7431

AUD/EURO (EURO/AUD)

This pair continues in directionless trading, now around 0.6671. The broad Australian dollar downtrend remains intact but the market will need an “event’ to break out of current rages. US data this week may help, but an Aussie downgrade or rate cut would have more effect on this cross, neither of which are likely in the short term.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6671 0.6635 0.6770 0.6618 - 0.6696
EUR/AUD 1.4990 1.4771 1.5071 1.4934 - 1.5109

AUD/YEN

Sitting around 82.38 after a high last week of 83.87 , initial support is at 81.75 but looks to be in consolidation mode at the moment, a move back into the 82.00 region is favoured over the next day or two...

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 82.34 81.75 84.00 82.25 - 83.87

AUD/CAD

The AUD is at 1.0002 continuing a decline from 1.0072 seen early last week, initial support is at 0.9970 , but the US data this week if good, will pressure the CAD and we may see some retracement in this cross ...look for a move back towards 1.0050 and above later in the week.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 1.0004 0.9970 1.0072 0.9995 - 1.0122

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Market commentary:

Last week ended on a mixed note as although the S&P 500 closed on Friday at an all-time high, there was negative news, with Hong Kong receiving a credit rating downgrade from Moody’s from Aa1 to Aa2, this followed a cut, for the first time since 1989, in China’s debt rating on Wednesday. A shortened trading week due to the US Memorial Day holiday yesterday will give traders a lot to digest over a reduced period as a raft of economic data is released this week. Markets are pricing in an 80% chance of a Fed rate hike in June but as always data is key. Later tonight will bring US personal consumption expenditure index data, the central bank’s preferred gauge of inflation. Wednesday will bring initial jobless claims and ADP payrolls, a day later traders get manufacturing survey results, and the week culminates with monthly Non-Farm payroll data, the bright spot of the economy. These figures will help set expectations for whether the Fed will raise rates as Fed officials forecast back in March. With President Trump back in the White House after his overseas sojourn there is likely to be more ongoing drama (tweeted  or otherwise) , but markets are looking for refocusing on the Administration’s  tax and infrastructure polices to get back on track .

Australia

Quiet trading in the Australian dollar overnight within a narrow 0.7425-0.7450 range. Building approval data for April is out later today and while it is expected to be up  around 1% , certainly better than March’s -13.4% but approvals continue in a downturn . Concern is also growing that further Chinese data will be weak thus capping any potential for a higher Australian dollar. April retail sales figures on Thursday will be closely watched. The tone for the AUD remains largely negative as softer commodity prices undermine support and the lower holiday volumes to some extent have helped the AUD hold its current levels. If this week's US data releases are solid prepare for more downside in the AUD with support at 0.7330 coming under pressure. Immediate support is at 0.7420 a break of which would see an extension towards 0.7365.

New Zealand

The New Zealand dollar was quite during early week trading as the US Dollar took a break with US Memorial Day. Overnight the kiwi climbed to a two month high of 0.7088 but was soon back trading at Monday’s open of 0.7035 after traders cashed in with profit taking during thin markets. The odds of a Fed rate hike is still high one key indicator is the Core PCE (Personal Consumption Expenditure) which prints tomorrow and shows only individual consumption a key inflation measure for the Fed. With this in mind if the reading shows April figures are approximately 2% this will increase the chances of a June 15 hike in rates. A quiet week locally with just the RBNZ Financial Stability Report to print Wednesday, this will give us a broad View of the NZ economy’s health highlighting areas such as interest rates, inflation and overall economic conditions. A plethora of US data is to be released over the coming days including Non-Farm payroll figures Friday. The NZD technically is showing higher highs and higher lows suggesting its comfortable sitting above 0.7000 previous resistance. Past current levels we have thin air to 0.7230 the high of 23rd February 2017, expect a bumpy ride towards the end of the week..

United States

With Trump back in town hopes will be for his policy agenda to get kick-started, particularly around infrastructure spending and tax, but given recent history we are doubtful if we see any positive moves anytime soon…!! Emphasis for the US is all on the major data dump this week. Expectations are that this week's data will show a US economy that continues to improve and we expect Friday’s NFP increase should be around 190,000 jobs for the May period with the unemployment rate remaining steady at 4.4%. This would maintain the course for a rate increase by the Fed at its meeting on 15th June. What does all this mean for USD levels? White House distractions aside, the US economy should look to being very much to be back in the grove if this week’s data is positive, if this is the case it will confirm our concerns that the USD is undervalued at current levels and that the increasingly divergent paths by the Fed vis-a-vis other Central banks (especially given the ECB president’s comments yesterday) point to the EUR/USD heading back to the sub 1.0800 territory over the next 2 months.

Europe

Economic data for the Eurozone continues to improve, but comments from ECB President Draghi in his testimony before the European Parliament yesterday, that the euro area still needs expansive monetary stimulus to restore stable inflation even as its economy accelerates caused the EUR to soften. He went on to say “We remain firmly convinced that an extraordinary amount of monetary policy support, including through our forward guidance, is still necessary,” Draghi told lawmakers on Monday in Brussels. “Domestic cost pressures, notably from wages, are still insufficient to support a durable and self-sustaining convergence of inflation toward our medium-term objective.” So essentially more of the same for a while, (read until at least year-end),  in the  ECB stimulus policy which will mean that  key influences of EUR levels will fall back to US Fed interest rate policy and US economic data releases. The old Greece problem reared its head again overnight, on reports that the Greek government is preparing to possibly go without next bailout payment (amount of EUR 7bn) if creditors cannot agree on debt relief...this saw the EUR drop back around 30 points against the USD. Look for the EUR to come under renewed pressure this week if US data continues to be positive, a move to 1.1080 is expected and if the EUR/USD returns to sub 1.1000 territory look for a deeper extension towards  1.0850.

United Kingdom

A tough week for the UK last week for Prime Minister May as the suicide bomber in Manchester was a cold reminder that the terrorism scourge is persistent and then there is the matter of the economy. First quarter GDP growth was slashed from its initial estimate of 1.2% annualized to 0.7%, largely on the back of weaker net trade (so much for a weak pound’s helping hand) and slower consumer spending (some of that due to higher inflation) also, the CBI reported that British retail sales fell to a four-month low in May. The upcoming election is now not looking as rosy for the Conservatives as first indicated, it is now just is just two weeks away (June 8th) and the Conservatives lead over the Labour Party in the polls has narrowed to just 5 % according to one poll, the smallest since  April 2016. Just a week ago, the Conservatives had a 9-point lead, and 18 points two weeks ago! Not helping were the headlines on the U-turns made by PM May, such as backtracking on the “dementia tax”. Let’s not forget our old friend Brexit. EU leaders have unanimously agreed that the exit bill would total €100 bln gross, or €55 bln-to-€75 bln net, an amount so incredibly high that Brexit Secretary David Davis has threatened to quit the talks before they even begin. The ECB’s Constantio effectively dismissed a Brexit impact on the Euro Area economy. He acknowledged that “of course Brexit is very significant for the UK, but in view of the relative size it is much less meaningful for the rest of the EU”. It will certainly not strengthen Britain’s ability to negotiate if the issue is dismissed for being not meaningful.
 

Japan

The Japanese Yen showed little movement trading in a narrow range during Monday’s session with US markets closed for Memorial day. The stronger global economy has strengthened support for Japanese products of late with GDP first quarter expanding at an annualised rate of 2.2%. Markets are not expecting the Bank of Japan to tighten its monetary policy in the foreseeable future despite an economy which seems to be moving forward. Later today we have Household Spending, Unemployment rate and Retail Sales. The long range target is still 108.00 with the pair consolidating around 111.00 we may see further strength develop in the Yen, 110.20 the previous low the immediate target this week.

Canada

The Canadian Dollar made its second successive weekly gain coming from 1.3530 levels to close the week at 1.3450. A slow start to the week with US Memorial Day has seen little volume traded. US political risk has put the US Dollar under pressure of late as speculation has surfaced that there may indeed be a Russian connection, a good chance we may yet see the Canadian Dollar back trading at the early April low of 1.3220. This week the most significant data release is the Current Account with the release of the Fridays Trade Balance likely to be overshadowed by the US Non-farm Payroll release.

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