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NZD now above 0.7100 USD and continues to outperform AUD; UK election, ECB meeting and Comey testimony key events for the week; Fed expected to increase rates despite weak economic data

NZD now above 0.7100 USD and continues to outperform AUD; UK election, ECB meeting and Comey testimony key events for the week; Fed expected to increase rates despite weak economic data

By Howard Willcox*:

US equity markets opened the week off last week's all-time highs, with the USD slumping with crude oil as risk trades took a back seat and markets opened a week full of events on a cautious tone. This week will be dominated by 3 main events all occurring on Thursday, the UK election (we should know the outcome by Friday midday), the European Central Bank (ECB)  meeting and the former head of the FBI James Comey is scheduled to testify before the Senate Intelligence Committee on Thursday morning in the US. Hopefully in the UK the Conservatives will win with an increased majority, giving some certainty to Brexit negotiations. The ECB will continue with a “steady-as-she goes” policy statement (expected by the market) and Comey’s testimony will not have a “smoking gun” that destabilises (further) the Trump administration. As any one of these events have potential to add a large dose of volatility to financial markets. The US Non-farm payroll data on Friday was a major disappointment well below expectations of 180-185K coming in at 138K jobs created in May, although the unemployment rate dropped to 4.3% from the previous 4.4%. However consensus remains that the Fed will go ahead with a 0.25% rate hike next week, although the probability for another hike in  September is now much more data dependent.

Major Announcements last week:

  • Canadian GDP 0.5% vs 0.3% expected
  • Australian Private Capital Expenditure 0.3% vs 0.4% expected
  • Australian Retail Sales 1.0% vs 0.3% expected
  • UK Manufacturing PMI 56.7 vs 56.5
  • US ISM Manufacturing PMI 54.9 vs 54.7 expected
  • UK Construction PMI 56.0 vs 52.7 expected
  • US Non-farm Payrolls 138k vs 181k expected
  • US Unemployment rate 4.3% vs 4.4% expected
  • UK Services PMI 53.8 vs 55.1 expected

NZD/USD

Momentum remains positive and the New Zealand dollar now looks happy over the 0.7100 level vs the US. With the US jobs data disappointing a move to the 0.7200 level looks more likely over the week as underlying New Zealand fundamentals continue to shine.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.7149 0.7050 0.7150 0.7040 - 0.7158

NZD/AUD (AUD/NZD)

The New Zealand dollar continues to outperform it’s Australian cousin. Now trading at 0.9560 after the weaker Aussie current account data earlier this afternoon, it made a high of 0.9615 on Friday and given the softer Aussie data if tomorrow's Q1 GDP weakens look for a retest of resistance at 0.9615 then 0.9625.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9568 0.9500 0.9615 0.9470 - 0.9623
AUD / NZD 1.0451 1.0400 1.0526 1.0392 - 1.0559

NZD/GBP (GBP/NZD)

The UK Pound continues to be buffeted by election jitters, this cross is now at 0.5528  and looks to be set to pressure 0.5560 which if broken could extend to above 0.5600.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5528 0.5480 0.5560 0.5473 - 0.5555
GBP / NZD 1.8091 1.7985 1.8248 1.8002 - 1.8271

 NZD/CAD

After a high at 0.9659 on Friday night the New Zealand dollar is now back around 0.9623 vs the CAD. The weaker crude oil price has helped the NZD break over the 0.9600 level and should this weakness continue, look for the NZD to have another push towards 0.9650 over the next few days.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9626 0.9500 0.9650 0.9491 - 0.9661

NZD/EURO (EURO/NZD)

The New Zealand Dollar is holding firm against the EUR, now at 0.6342 with the NZD well supported ahead of the ECB meeting on Thursday, we still look for a push towards 0.6400 later in the week.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.6342 0.6300 0.6400 0.6278 - 0.6369
EUR/NZD 1.5769 1.5625 1.5873 1.5701 - 1.5929

NZD/YEN

The NZD has drifted lower against the stronger Japanese Yen after the US jobs figure, now around 78.50 after a high of 79.12 last Friday, immediate support is at 78.30 but this should hold and we see sideways trading over the next 2-3 days.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 78.49 77.95 79.20 78.10 - 79.11

AUD/USD

After a high of 0.7497 yesterday the Australian dollar has been hit hard by the weaker Current account data and is now back at 0.7465. The RBA statement this afternoon has the potential to be market moving, but with a lower Q1 GDP result now expected tomorrow, the AUD now looks more on the back foot. Look for a move to the 0.7430 support level over the next day or so.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7468 0.7405 0.7470 0.7373 - 0.7497

AUD/GBP (GBP/AUD) 

A better couple of days for the Australian dollar on this cross as UK elections undermine the UK Pound. Now trading at 0.5777 after a high of 0.5816 yesterday. Poor Aussie data has knocked the AUD and we look for sideways trading ahead of the UK election on Thursday. AUD fundamentals remain poor.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5777 0.5715 0.5825 0.5718 - 0.5833
GBP / AUD 1.7309 1.7167 1.7497 1.7145 - 1.7489

AUD/EURO (EURO/AUD)

Now at 0.6622 after a low of 0.6572 last Friday, poor Aussie data will undermine AUD rallies but Thursday’s ECB meeting is a market mover….a maintenance of the status quo by the ECB will help the AUD but tomorrow’s Aussie GDP if poor will hamstring further AUD advances.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6624 0.6540 0.6700 0.6567 - 0.6698
EUR/AUD 1.5096 1.4925 1.5291 1.4930 - 1.5227

AUD/YEN

Has good support at 81.90 and currently trading around 81.98 , expect little change ahead of RBA later today , but Aussie GDP tomorrow could provide a catalyst to trade sub 81.50 support level.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 81.99 81.50 82.45 81.81 - 82.95

AUD/CAD

The AUD has made up some ground against the CAD on the weaker crude oil price, now around 1.0060 but given today’s RBA and tomorrow’s Aussie GDP this will take the pressure off the CAD ...the CAD is favoured over the AUD , look for a move to test the 0.9950 level over the next day or so.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 1.0055 0.9925 1.0072 0.9950 - 1.0103

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Market commentary:

US equity markets opened the week off last week's all-time highs, with the USD slumping with crude oil as risk trades took a back seat and markets opened a week full of events on a cautious tone. This week will be dominated by 3 main events all occurring on Thursday, the UK election (we should know the outcome by Friday midday), the European Central Bank (ECB)  meeting and the former head of the FBI James Comey is scheduled to testify before the Senate Intelligence Committee on Thursday morning in the US. Hopefully in the UK the Conservatives will win with an increased majority, giving some certainty to Brexit negotiations. The ECB will continue with a “steady-as-she goes” policy statement (expected by the market) and Comey’s testimony will not have a “smoking gun” that destabilises (further) the Trump administration. As any one of these events have potential to add a large dose of volatility to financial markets. The US Non-farm payroll data on Friday was a major disappointment well below expectations of 180-185K coming in at 138K jobs created in May, although the unemployment rate dropped to 4.3% from the previous 4.4%. However consensus remains that the Fed will go ahead with a 0.25% rate hike next week, although the probability for another hike in  September is now much more data dependent.

Australia

After Friday’s lacklustre US jobs report the Australian dollar staged a comeback rising to a high of 0.7497, it opens this morning around 0.7486 in a consolidative mode ahead of this afternoon’s RBA statement. Also helping the Aussie dollar were better Chinese PMI results yesterday that allowed the AUD to consolidate the moves higher made on Friday. Market expectations are for the RBA to keep rates unchanged at 1.50% as reports since the RBA's last meeting show strong employment gains and a surprise rebound in retail sales. However the counter to this has seen construction has being softer and wage growth remaining stagnant. Also the first signs in 18 months in May of a cooling off in house prices make a rate cut more likely in the September quarter as the RBA has more time to gather further data over the intervening period. Given the moves over the last two days 0.7500 is the immediate resistance level which if broken would likely see some short covering which should push the AUD into the 0.7540/50 region with next resistance level up at 0.7485. On the downside a pullback below 0.7460 would target support around 0.7430/35 which if broken could extend down to the 0.7400/0.7390 mark. Just released is news that the Aussie current balance is much worse than expected at -3.1bln against an expected -0.5bln, net exports were also substantially lower suggesting a potential downgrade of around 0.7% for tomorrow's March quarter GDP. The AUD has sold off around 35 pips to 0.7455 on this news.

New Zealand

The New Zealand dollar pushed back through 0.7130 during early morning trading back in favour with investors again after weaker US data was published. We need to go back to early February to view NZD interest at these levels, the bullish channel from the low of 0.6815 still remains in place. Non-Farm Payroll and Manufacturing numbers were both weaker than expected Friday. The main focus over the next few days will be on the Fed Rate announcement, with good gains in employment and wage growth this supports a June 15th hike but hardly gives them any long term excitement and urgency with inflation lower than the targeted 2%.  Global Dairy Trade Auctions are held overnight with expectations of continuing recent momentum in prices to the 9 dairy products. NZD remains solid over 0.7100 with view of possibly returning to 0.7250 resistance in the short term.

United States

The disappointing NFP jobs data on Friday was slightly tempered by the small drop in the unemployment rate from 4.4% to 4.3%, however this could not prevent the US dollar dropping against all its major trading partners. Although significantly below market expectations the payrolls report has not derailed expectations of a 0.25% Fed rate hike next week but it has cast doubt over the extent of any further tightening going into the 3rd and 4th quarters of this year. The testimony by ex FBI Director Comey will hopefully for the Trump administration, not contain any major revelations as this would continue to further divert attention away from the administrations next policy thrust of increased infrastructure spend which has been one of the pillars of the “Trump bump” equity rally over the last few months. Other US data releases for ISM non-manufacturing, factory and durable goods orders were also softer but had little immediate effect on the market. The USD opens at lower levels against both the JPY and EUR and we would expect little major movement ahead of Thursday as markets await results of the UK election, ECB meeting and the Comey testimony. Look for the EUR/USD to trade  around 1.1250 over the day with risk  towards the upside,  a break beyond 1.1300 is still required to confirm a new leg higher, while a break below 1.1180 will probably see a downward corrective extension  to the 1.1120 region.

Europe

The ECB meeting on Thursday is expected to have an outcome of rates staying on hold, but there are expectations that comments will feature around the projected time frame for tapering stimulus measures as the Eurozone economy gradually continues to improve. The EUR was the main benefactor of the weaker than forecast US NFP on Friday, trading up to multi-month highs at 1.1284. It is now sitting around 1.1268 but risk remains towards the upside, with a break above 1.1300  required to confirm a new leg higher, while a move below 1.1180 will probably see a downward corrective extension down to the 1.1120 region. There are retail sales data for May due tonight, but we expect consolidation at around current levels ahead of Thursday’s ECB meeting.

United Kingdom

A mixed start to the week with the FTSE equity index tracking lower yesterday ahead of a critical week in the UK, Eurozone and US. UK services sector growth was lower on Brexit fears  and another significant poll was released alongside the disappointing PMI services figures. After strong manufacturing and construction PMI readings last week, yesterday's  sharp deterioration in the services reading highlights what could be the new norm as services firms shift their emphasis away from the UK in the wake of article 50. While firms may not be laying off workers, there is a feeling that we will see banks begin to build out their regional offices in response to the UK’s impending departure from the EU.
Another poll result, this time YouGov, speculating that despite a likely Tory victory, they could fall short of the 326 required to for a majority government. Given the wide range of poll results, it is clear that the industry is coming under pressure once more in the wake of failures in both the EU referendum and US election. After the weekend’s attack around London Bridge, the main political parties are clearly seeing this renewed focus upon security as an opportunity to prove their mettle, with Corbyn calling out May’s policing record as home secretary. While Theresa May seems to have adopted a more steely resolve than before, this seems a like too little too late given her track record of cutting police numbers over the years. 

Japan

The Japanese yen charged ahead against the USD Dollar Friday on weaker than expected non-farm payroll data . Markets were expecting a solid figure but with numbers showing an increase of 131k jobs in May this was well short of expectations and dropped the US across the board. ISM Non- Manufacturing figures also pointed to a slowdown in the services sector falling to 56.9 points based on an estimated 57.1 The Yen rallied off the back into territory not seen since late April blowing aside resistance of 110.60 to post a low of 110.30 late during NY session. JPY should continue to strengthen this week with investors moving back into the safe-haven trade with US Trump political issues still to be settled with Russia. Support still around the 109.80 and 108.120 with resistance at 112.10 and 114.35

Canada

The Japanese yen charged ahead against the USD Dollar Friday on weaker than expected non-farm payroll data . Markets were expecting a solid figure but with numbers showing an increase of 131k jobs in May this was well short of expectations and dropped the US across the board. ISM Non- Manufacturing figures also pointed to a slowdown in the services sector falling to 56.9 points based on an estimated 57.1 The Yen rallied off the back into territory not seen since late April blowing aside resistance of 110.60 to post a low of 110.30 late during NY session. JPY should continue to strengthen this week with investors moving back into the safe-haven trade with US Trump political issues still to be settled with Russia. Support still around the 109.80 and 108.120 with resistance at 112.10 and 114.35

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