After falling significantly against the USD from 0.7170 before the coalition news, the NZD is trading around the 0.6976 level; NZDAUD trading at around the 0.8928 mark after testing 0.8883 yesterday; AUD driftls lower on stronger USD

By Howard Wilcox*:

Relatively quiet start to the week with the risk-on tone continuing as US equity markets initially held at record levels although were softer at the end of the North American session as investors prepared for a big week of corporate earnings results, monitored the progress of tax legislation and awaited a decision on the new Federal Reserve Chair.

There were also some interesting political developments, as widely expected and predicted in polls, Japanese PM Shinzo Abe secured a strong mandate for more ultra-easy monetary policy over the weekend. The ruling coalition retained its two-thirds majority in the 465 member lower house in their weekend election. This election outcome should provide a near-term boost for Japanese equities, and given the relationship between the Nikkei and USD/JPY, will probably lead to the USD/JPY testing the year’s highs around 115.

Also of note and less widely expected was the outcome of the Czech republic election, which saw a victory for the right, with Billionaire Andrej Babis elected, who is likely to form a Government from the right. This is not great news for the EU, as they form the growing anti-EU Eastern Block, from within the 27 members.  The Catalan issue continues to rumble on, with the power struggle between Madrid and Catalonia continuing over the weekend, with the central government announcing that it will remove the Catalan leadership and threaten lengthy jail terms immediately in the event of a formal declaration of independence. Interestingly two of Italy’s wealthier regions voted for greater autonomy over the weekend. This all comes at a time where torrid negotiations continue, to determine Brexit and any future trade agreement.

Major Announcements last week:

  • Australian Employment Change 19.8k vs 14.1k expected
  • Australian Unemployment Rate 5.5% vs 5.6% expected
  • UK Retail Sales -0.8% vs -0.1% expected
  • Canadian CPI 0.2% vs 0.3% expected

NZD/USD

The New Zealand dollar, after falling significantly against the USD from 0.7170 before the coalition news, is trading around the 0.6976 level. It looks to have found its feet around current levels and we would expect some consolidation until more policy/coalition details are made available later this week. Offshore moves should provide direction in the short term. A break of 0.6930 has potential to extend to the 0.6850 region, although this is unlikely over the next few days and ahead of the US GDP on Friday.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6983 0.6930 0.7050 0.6933 - 0.7186

NZD/AUD (AUD/NZD)

The New Zealand dollar was knocked to a low of 0.8883 against the AUD yesterday on light volumes, but it is now back around the 0.8928 mark. Solid support at the 0.8860 level is yet to be tested, but we expect the NZD to consolidate at current levels, at least until tomorrow Aussie CPI, however a very bullish CPI number may see the 0.8860 level pressured.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.8931 0.8860 0.8980 0.8883 - 0.9160
AUD / NZD 1.1197 1.1287 1.1136 1.0916 - 1.1257

NZD/GBP (GBP/NZD)

The NZD has regained some ground against the UK Pound, now at 0.5286 as the Brexit negotiations continue to undermine GBP value. The UK pound has its own set of problems and at the moment these are probably more deep seated than those of the NZD. Look for sideways consolidation close to current levels over the next few days. We view current levels as attractive for those looking to convert GBP to NZD.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5281 0.5250 0.5500 0.5261 - 0.5450
GBP / NZD 1.8936 1.8181 1.9047 1.8349 - 1.9007

 NZD/CAD

The NZD regained ground against the Canadian dollar on the weaker than expected Canadian data releases Friday as well as speculation that the BoC would keep rates on hold at 1% after tomorrow night’s meeting. Now at 0.8820 the NZD is considerably higher from Friday's 0.8710 low for the year and it should hold at current levels over the next few days.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8819 0.8800 0.9050 0.8713 - 0.8713

NZD/EURO (EURO/NZD)

Now around 0.5937 against the Euro, the New Zealand dollar has recovered some of last Friday’s losses. Catalan problems and the ECB announcement on Thursday over QE exit has potential for more EUR weakness, but NZD upside is limited until policy detail for the new Government becomes clearer.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5937 0.5880 0.6020 0.5897 - 0.6110
EUR/NZD 1.6842 1.6611 1.7006 1.6366 - 1.6958

NZD/YEN

Now at 79.12 after a 78.80 low on Friday the New Zealand dollar should garner some support against the Japanese Yen, as Abenomics looks set to continue and the BoJ continues with easier monetary policy. However geopolitical risks remain which will keep the NZD contained below the 81.00 level, especially given the lack of policy detail from the new Labour government.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 79.17 78.50 82.50 78.83 - 80.95

AUD/USD

The Australian dollar has drifted lower on the stronger USD and is now at 0.7816 after brief dip to 0.7795 yesterday. Tomorrows CPI may provide support for the AUD, but given progress on US tax reform and Friday’s US CPI downside is favoured on this cross. Immediate support is at 0.7770 on a break of 0.7795 with potential to extend to the 0.7730/35 level. The upside should be contained at the 0.7850 level.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7814 0.7730 0.7855 0.7797 - 0.7884

AUD/GBP (GBP/AUD) 

The Australian dollar has softened against the UK Pound, now at 0.5917 after a high last week of 0.5994. Brexit problems should keep the GBP under pressure but any break below 0.7800 against the USD will keep the AUD soft on this cross. Tomorrow's CPI may favour the AUD which could see a push back over the 0.5940/50 mark.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5914 0.5850 0.6080 0.5905 - 0.5993
GBP / AUD 1.6910 1.6447 1.7094 1.6686 - 1.6936

AUD/EURO (EURO/AUD)

The AUD has drifted marginally lower on this cross, now at 0.6647 Euro but direction now looks a little uncertain as geopolitics have the potential to sap EUR increases and the ECB meeting on Thursday is crucial for further direction. Aussie CPI may help the AUD tomorrow but look for a 0.6620-0.6700 range over the next few days.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6645 0.6590 0.6760 0.6628 - 0.6681
EUR/AUD 1.5049 1.4792 1.5174 1.4967 - 1.5087

AUD/YEN

Now at 88.60 the AUD has dropped on this cross over the last two days...a good CPI tomorrow may see the AUD  regain the 89.00 handle pushing to the 89.30/40 level...

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 88.60 85.40 89.70 87.80 - 89.09

AUD/CAD

The AUD is now at 0.9870 on this cross after weaker Canadian data on Friday...with no BoC rate hike in the short term, we favour the Aussie on this cross and look for a push back to the 0.9900 level over the next few days.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9871 0.9670 0.9905 0.9771 - 0.9884

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Market commentary:

Relatively quiet start to the week with the risk-on tone continuing as US equity markets initially held at record levels although were softer at the end of the North American session as investors prepared for a big week of corporate earnings results, monitored the progress of tax legislation and awaited a decision on the new Federal Reserve Chair.

There were also some interesting political developments, as widely expected and predicted in polls, Japanese PM Shinzo Abe secured a strong mandate for more ultra-easy monetary policy over the weekend. The ruling coalition retained its two-thirds majority in the 465 member lower house in their weekend election. This election outcome should provide a near-term boost for Japanese equities, and given the relationship between the Nikkei and USD/JPY, will probably lead to the USD/JPY testing the year’s highs around 115.

Also of note and less widely expected was the outcome of the Czech republic election, which saw a victory for the right, with Billionaire Andrej Babis elected, who is likely to form a Government from the right. This is not great news for the EU, as they form the growing anti-EU Eastern Block, from within the 27 members.  The Catalan issue continues to rumble on, with the power struggle between Madrid and Catalonia continuing over the weekend, with the central government announcing that it will remove the Catalan leadership and threaten lengthy jail terms immediately in the event of a formal declaration of independence. Interestingly two of Italy’s wealthier regions voted for greater autonomy over the weekend. This all comes at a time where torrid negotiations continue, to determine Brexit and any future trade agreement.

Australia

The Australian dollar opens the week easier against the USD at 0.7805 after a high last week of 0.7882. The AUD has dipped to 0.7796, a 7 day low,  but saw buying interest push the Aussie back over the 0.7800 level, not helping was yesterday’s release of house price data from China, showing a 6.3% rise in September as compared to previous month's 8.3% strong gain, which was seen weighing on the China-proxy Australian Dollar. Price action today is expected to be sideways, with little firm direction as investors look to refrain from placing aggressive bets ahead of this week's key Q3 CPI data tomorrow and Friday's Q3 US GDP figures.  The AUD/USD is now trading around 0.7806 with resistance now at 0.7825, short term outlook is bearish and weak CPI result tomorrow could see support at 0.7795 breached which may open the door to 0.7760.

New Zealand

The New Zealand dollar extended post coalition announcement losses to 0.6931 overnight, it is now back around 0.6972 and further direction will rely on the new government's policy announcements expected later in the week and what implications they will have on New Zealand’s  economic growth. Little in the way of meaningful NZ data this week, so offshore moves will provide the driver for the NZD with US GDP on Friday and news on the US tax reform progress having the ability to significantly affect NZD price action. A shift lower would find support back around 0.6930 which if broken would target the physiological 0.6900 mark, ahead of the May 22nd  low of around 0.6920 then the year low at 0.6816 seen on May 10th. A hold above 0.6930 would indicate that perhaps we have seen post-election lows, but given USD strength any substantive rally back to the 0.7100+ levels is unlikely.

United States

The US dollar opens the week firmer and looks to be the place to be with no shortage of other potential catalysts out there for investors this week, from the reaction to the election in Japan and the Czech Republic, to the ongoing Catalonia crisis and very different moves toward autonomy in parts of Italy. Central banks also loom large, with a pivotal European Central Bank meeting due and the possible unveiling of President Donald Trump’s pick for Federal Reserve chair, which should be disclosed later this week. US equity markets continue to trade at record levels but did soften last night on the close of US trading as investors trimmed trading positions ahead of a big week of corporate results. Pressure on the EUR/USD has intensified after the US Senate approved the federal budget last Thursday and investors are considering this as a fast-track for the implementation of the long-awaited tax reform proposed by the Trump’s administration. Furthermore, the pair is expected to stay under scrutiny in light of the upcoming ECB meeting on Thursday, where consensus seems to lean towards a somewhat dovish tone regarding QE ‘tapering’. Next support for the EUR/USD is around 1.1730 which if broken could see an extension to the 1.1686 level. Conversely an upside push through resistance at 1.1858 would target 1.1880. The USD/JPY has also firmed on the back of Japanese PM Abe’s election win as the markets look for a continuation of easier BoJ monetary policy. The short side is the favoured play at the moment, for both the EUR and JPY ahead of Friday’s Q3 GDP data.

Europe

Main news from the Eurozone centres around the ECB this week, which is holding its policy meeting on Thursday where further details of the region’s stimulus and QE tapering plan for 2018 is to be announced. Expectations are for the ECB to go for a ‘slow for longer’ scenario, with EUR30bn of monthly purchases for nine months starting in January 2018, however the governing council may opt for cautious wording, with some downside risks for the euro. The ongoing Catalan crisis is being watched anxiously by investors, especially as it appears to be gaining speed and no doubt the problem is causing concern within the ECB, especially given the news over the weekend that two of Italy’s wealthier provinces were also in favour of more autonomy from the central government in Rome, potentially exacerbating problems within an already fractious union and unsettling the EUR. Tonight will see data releases for Eurozone manufacturing and services PMI’s for October which are expected to show continued growth and German consumer confidence on Thursday is also expected to be positive. Currently the EUR/USD is trading at 1.1754 with next support around 1.1730 which if broken could see an extension to the 1.1686 level. Conversely an upside push through resistance at 1.1858 would target 1.1880.

United Kingdom

The UK pound broke through the 1.3200 level against the USD trading up to a high of 1.3225 driven by nervousness over the Catalan situation, which saw an inflow to the GBP, and traders  factoring an 80% chance of  November 2nd rate hike of 0.25% from the BoE. Also in focus is the Q3 GDP data due Wednesday which is expected to come in at 0.3% (unchanged from Q2) which would show a small softening year-on-year of 1.4% against 1.5% previously. With economic activity moderating, and price pressures expected to peak soon and the significant pass-through of higher rates to households, a sustained campaign to normalize monetary policy does not appear to be at hand. This could explain why the UK pound has been unable to make a sharper recovery against the US dollar during the last few weeks. Brexit negotiations continue to grind on with beleaguered PM May relations hitting an all-time low with the EU as she issues a “no-deal” is better than a bad deal threat indicating for the first time that unless a trade deal is agreed by next summer, Britain will leave the EU in March 2019 without a transition period. The GBP/USD short-term outlook points to a continuation of  consolidation around 1.3200 , s significant close above 1.3220 could clear the way to more gains, while on the downside a slide below 1.3140 would add bearish pressure to the pair.

Japan

The main news from Japan was the landslide win of PM Abe’s party in the weekend election. This will mean that the current economic direction of “Abenomics”, his platform of fiscal spending and monetary easing, would likely continue, with an unchanged emphasis on a 2% inflation target and continuation of the BoJ stimulus policy to achieve this goal. Abe’s party retained its 2/3rds majority of the 465 seats in the Diet's lower house. The USD/JPY has also firmed on the back of Japanese PM Abe’s election win as the markets look for a continuation of easier BoJ monetary policy. Now at 113.34 the USD/JPY traded up to 114.09 and a break back above this level would target major resistance at 114.40. A good US Q3 GDP on Friday figure may provide the impetus for such a move, however geopolitical tensions remain as an undercurrent and if tensions increase again with Nth Korea the JPY may see a resurgence.

Canada

After disappointing data releases on Friday, the USD/CAD rose to 1.2641; the highest level since Aug 31 as persistent USD demand made sure the CAD received little support from the uptick in oil prices. Friday’s data saw CPI rise in September, 0.2%, below the 0.3% expected, while the core CPI climbed 0.2% also below expectations. In another report, retail sales also missed forecasts. Sales contracted 0.3% in August, while sales excluding the Autos sector dropped 0.7%; a minor increase was expected in both readings. The BoC is now not expected to change rates on Wednesday and is anticipated to keep rates unchanged after an earlier unexpected rate hike last month put the benchmark rate at 1%. The USD/CAD is now sitting around 1.2633 with immediate support at 1.2600 then 1.2560 upside resistance is at 1.2660 then 1.2690.

Daily exchange rates

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