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NZD trading at 0.7519 USD on a weak USD; USD down 2.6% for the month as continuing upheavals in the Trump administration and lack of progress on tax agenda attracted USD selling, direction to be driven by data releases this week

NZD trading at 0.7519 USD on a weak USD; USD down 2.6% for the month as continuing upheavals in the Trump administration and lack of progress on tax agenda attracted USD selling, direction to be driven by data releases this week

By Howard Wilcox*:

The month ended on international markets last night with US stocks closing mixed, but overall, major US indices posted their fourth month of record gains boosted by growing evidence of resilient world economic growth. China’s official factory data showed continued expansion in June, even as it slipped amid government efforts to curb financial risks. Japan’s industrial output increased in June, while numbers on Friday showed the U.S. economy accelerating in the second quarter. Results for Eurozone equities were not as positive as they closed lower for the month, however increasingly better data from the region should bolster European equities later this month, the better data also increases the probability that the ECB will be in a better position to start winding back its quantitative easing programme later this year. The continuing upheavals in the Trump administration and the lack of progress on his tax agenda continued to attract USD selling, which saw the Greenback close down 2.6 % for the month. This week brings a slew of US data which will culminate in the Non-farm payrolls figure which could provide some respite to the USD.

Major Announcements last week:

  • US Consumer confidence 121.1 vs 116.5 expected
  • Australian CPI 0.2% vs 0.4% expected
  • UK Prelim GDP 0.3% as expected
  • FOMC leaves interest rate unchanged
  • US Core Durable Goods Orders 0.2% vs 0.4% expected
  • Canadian GDP 0.6% vs 0.2% expected
  • US Advance GDP 2.6% vs 2.8% expected

NZD/USD

After surging to a high of 0.7556 last week the New Zealand dollar has settled back to currently trade around 0.7515 against the USD. The upside looks limited to 0.7550 given the overhang of US data figures in the next few days, which if good could see the NZD target 0.7400. We favour a downside scenario as the NZD looks a little out of breath much above 0.7520.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.7519 0.7400 0.7550 0.7403 - 0.7556

NZD/AUD (AUD/NZD)

Today’s RBA statement has the ability to surprise, but we expect a range around the 0.9340-0.9410 level to prevail over the next day or so for the New Zealand dollar vs the Aussie. Clear direction remains elusive and with most of the focus on US figures it is hard to see any clear trend emerging this week.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9346 0.9220 0.9460 0.9334 - 0.9441
AUD / NZD 1.0700 1.0571 1.0846 1.0592 - 1.0714

NZD/GBP (GBP/NZD)

Our comments from last week still prevail, no clear direction for this pair as the weaker USD continues to dominate. Currently around 0.5692 and given the softer data that has started to emerge from the UK we look for a move towards the 0.5755 level over the next week or so. If tonight’s dairy auction is solid and tomorrow's NZ employment data is positive acceleration of this timeframe may occur.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5684 0.5650 0.5755 0.5679 - 0.5747
GBP / NZD 1.7594 1.7377 1.7699 1.7402 - 1.7609

 NZD/CAD

After a high last week at 0.9416 the New Zealand dollar is back at the 0.9390 level but with the disappointing Canadian data out over the last few days any NZD weakness should be held at the 0.9350 level over the next few days, if NZ data is solid look for a move back over 0.9400 to the 0.9415 level.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9392 0.9350 0.9416 0.9263 - 0.9416

NZD/EURO (EURO/NZD)

The more positive trend in Eurozone data over the last few days has seen the NZD/EUR move to 0.6339. It is currently at 0.6355 and with the EUR making powerful gains on the USD we expect the EUR to continue to erode New Zealand dollar value on this cross. 0.6310/20 looks likely later in the week.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.6354 0.6210 0.6340 0.6339 - 0.6437
EUR/NZD 1.5737 1.5552 1.6103 1.5534 - 1.5776

NZD/YEN

After a 83.89 high last week this cross is now back around the 82.87 level, however given data out of Japan continues to favour continuation of the BoJ easing policy any correction lower is likely to be relatively shallow and the 82.00 support level should hold NZD pullbacks for this week.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 82.75 82.00 83.80 82.42 - 83.91

AUD/USD

The Australian dollar is currently back up at the 0.8040 level and although reliant on the RBA statement later this afternoon it looks well bid against the weaker USD. Traders will be a little reluctant to push the AUD to high ahead of the US data dump this week but 0.8050 looks possible over the next day or so.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.8040 0.7870 0.8065 0.7878 - 0.8065

AUD/GBP (GBP/AUD) 

The Australian dollar is still in a sideways trend against the UK Pound. Currently around the 0.6082 level and given the weaker UK economic data AUD upside is favoured (albeit RBA ructions excepted). Upside should be capped at the old 0.6134 (1.6526) level.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.6080 0.6060 0.6150 0.6047 - 0.6133
GBP / AUD 1.6447 1.6260 1.6502 1.6306 - 1.6537

AUD/EURO (EURO/AUD)

Currently around 0.6795 in what has been choppy trading over the few days, the EUR looks to be grinding higher, based on its strength against the USD and better data flows ….immediate support is at 0.6754 which if broken would see a move to 0.6715...

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6793 0.6715 0.6840 0.6753 - 0.6865
EUR/AUD 1.4721 1.4620 1.4892 1.4568 - 1.4809

AUD/YEN

Currently around 0.6795 in what has been choppy trading over the few days, the EUR looks to be grinding higher, based on its strength against the USD and better data flows ….immediate support is at 0.6754 which if broken would see a move to 0.6715...

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 88.47 87.40 89.30 87.88 - 89.42

AUD/CAD

After opening at a low of 0.9923 yesterday the AUD is now back at 1.0047 on the CAD we look for a break of 1.0050/55 level and a push on to the 1.0083 level over the next 24 hrs….

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 1.0041 0.9950 1.0083 0.9862 - 1.0048

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Market commentary:

The month ended on international markets last night with US stocks closing mixed, but overall, major US indices posted their fourth month of record gains boosted by growing evidence of resilient world economic growth. China’s official factory data showed continued expansion in June, even as it slipped amid government efforts to curb financial risks. Japan’s industrial output increased in June, while numbers on Friday showed the U.S. economy accelerating in the second quarter. Results for Eurozone equities were not as positive as they closed lower for the month, however increasingly better data from the region should bolster European equities later this month, the better data also increases the probability that the ECB will be in a better position to start winding back its quantitative easing programme later this year. The continuing upheavals in the Trump administration and the lack of progress on his tax agenda continued to attract USD selling, which saw the Greenback close down 2.6 % for the month. This week brings a slew of US data which will culminate in the Non-farm payrolls figure which could provide some respite to the USD.

Australia

Big news of the day for Australia today will be the RBA rate decision later this afternoon and will it keep rates on hold at the current 1.5%, given the resurgent AUD strength? Most likely there will be no change but particular focus will be on the rhetoric surrounding the statement and the RBA's outlook for the strength of the Aussie, especially considering the shift to the weaker outlook for the US dollar. With AUD/USD currently pushing against the 0.8000 psychological level, expect the traditional jawboning of the currency to come into play in today's meeting. Normally, that would equate to a softening in AUD levels  and in this case, potentially be exposing the 0.7750 Feb/March resistance levels, as traders will be reluctant to drive the AUD too far ahead of the next few days of heavy US data releases

New Zealand

After last Thursday’s 26 month high against the USD at 0.7556 the NZD has pulled back to open the week now trading around the 0.7500 level, up from yesterday's low around 0.7467. Not helping the NZD was a sharp drop in NZ  business confidence, with yesterday’s ANZ Business Confidence Index falling to 19.4 in July from last month's reading of 24.8. Later tonight there is another Global dairy auction with employment stats tomorrow, these are expected to be positive and we expect the NZD to hold around the current 0.7500 level ahead of these two events. With a slew of US data released this week it is hard to see the NZD much over 0.7550 and if the USD benefits from stronger economic results a test of the 0.7400 level may occur as we head into the crucial US jobs report on Friday. The latest change in leadership for the Labour Party has not affected the market as the polls still show an election result next month favouring the incumbent government as likely and any change in government is not likely to see any major shift away from current  economic policy.

United States

After opening at marginally better levels than Friday's close, the USD then sold off, with the EUR/USD making a fresh 2017 high at 1.1831, a level not seen since Jan 2015 as the mixed US data was insufficient to beat back the prevailing negative greenback sentiment. Continued confusion emanating from the Trump Whitehouse with the firing of the US communications director after only 10 days in the job is doing little to help the negative USD sentiment. It is now becoming increasingly difficult for the tax cut and infrastructure agenda to be enacted before year end and with problems ahead on the deficit ceiling being hit after the August government recess, it is hard to see any immediate change for the crisis hit Trump administration. US manufacturing and employment data released over the next few days is largely expected to be positive and Friday’s Non-farm payroll is expected to come in around 180K jobs created for July, but this may only bring a temporary reprieve to the downward US pressure.

Europe

The stronger EUR trend continued with the EUR climbing to a 26 month high against the USD at 1.1844. As well as the weaker USD, markets were buoyed by  European July core inflation rising from 1.1% to 1.2% y/y, which helped push the EUR to its 26 month high. This data (together with unemployment data) provides some grounds for optimism and arguably confirms that deflationary pressures are receding. However it still remains some way off target and the rise is in no small part down to the ECB's extraordinary monetary policies and while the data is encouraging, we are now of the of the view that although the ECB has been slow to change policy in the past, we should see some movement to reduce its quantitative easing policy later in the year.

United Kingdom

The GBP has continued its climb against the weaker USD, hitting a high of 1.3222, its highest level since Sept 2016. It has currently settled back around the 1.3200 level. The  growth spurt seen post the Brexit vote now appears to be somewhat cooling appears to be cooling, with  UK mortgage approvals  the lowest in nine months in June according to official money figures, with 64,684 approvals in June, down from 65,109 in May. Consumer credit growth was also lower, falling modestly, with the annual rate of growth at 10% from 10.4% in the previous month. The report also showed that non-mortgage lending to consumers dropped from £1.8 billion in May to £1.5 billion in the same month. Manufacturing PMI data for July in the UK to be released later tonight is expected at 54.3, although the most relevant event for the week will be the BOE's monetary policy meeting on Thursday, which will also bring fresh economic outlooks, the BoE is expected to keep rates on hold at 0.25%.

Japan

With the current weaker USD prevailing, the Japanese Yen continues to make gains with the USD/JPY falling to 110.20, a 6 week low. Economic data from the Japanese manufacturing sector saw growth expand at a slower rate, 52.1 in July vs. 52.4 in June, however this was the eleventh straight month of improvement in operating conditions. Data also showed that although export trade increased for July it was at the lowest rate in nearly a year. So all-in-all, no reason to expect any change soon in the BoJ policy of monetary easing.

Canada

The CAD has drifted lower against the USD down to 1.2412 but after the Canadian data failed to meet market expectations, it is now back at 1.2495. The Industrial Product Price Index (IPPI) decreased by 1.0% in June after rising 0.1% (revised from -0.2%) in May. Also, the Raw Material Price Index (RMPI) contracted by 3.7% for the same month and both sets of data came in below market expectations. Further details of the report revealed that the decline in IPPI and RMPI were caused by lower prices for energy and petroleum products.

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