NZD expected to consolidate around current levels of 0.6850 and some retracement of losses expected; against the AUD the NZD has recovered to 0.8915 and the 0.8850 support level is expected to hold

NZD/USD

The New Zealand dollar remains under pressure against the USD. It should consolidate around current levels 0.6850 and we still expect some retracement of previous losses back to the 0.6980-0.7000 level, but will be tough given the US data due this week. A break of 0.6820 would open the door to 0.6775.

NZD/AUD (AUD/NZD)

After a low of 0.8848 seen last week, the New Zealand dollar has seen a small recovery against the AUD.  Now at 0.8915 it is up from yesterday’s 0.8897 low but hardly convincing. All the action should remain off shore this week and we expect this pair to remain side-lined. We continue to believe the 0.8850 support zone will contain any periods of weakness in the near term, and a broader recovery should develop. Australian data later this week in the form of Retail Sales will be key.

NZD/GBP (GBP/NZD)

The UK Pound has put on further gains against the NZD as the potential Thursday BoE rate hike continues to be factored into the currency. Better economic data continues to support the GBP but Brexit woes should keep the GBP from racing away. A corrective bounce in the NZD is overdue.

 NZD/CAD

Choppy trading for this pair now back at 0.8780 with no clear direction. A bounce in the New Zealand dollar would see a break of 0.8820 but with offshore influence likely to drive both currencies this week we expect this cross to stay within the current 0.8750-0.8820 range mover the next few days.

NZD/EURO (EURO/NZD)

The New Zealand dollar has held against the Euro, now at 0.5887 although back from the 0.5924 seen yesterday. Fairly directionless at the moment but a break of 0.5860 would open the way to 0.5810, close to the year’s low, so a good level to switch EUR to NZD.

NZD/YEN

The New Zealand dollar continues to slide on this cross, now at 77.55 well below the 78.50 support level. It has pretty much been one-way traffic down for the NZD on this cross so we would expect some correction, but at the moment the bear trend is intact...next stop 76.90.

AUD/USD

The Australian dollar continues to get knocked around by the USD, now at 0.7678 not far from the 3 1/2 month low of 0.7624 last week. Weaker Chinese PMI data today saw further AUD weakness. Support is back at 0.7650 then 0.7610 good US data later in the week could see these levels under threat.

AUD/GBP (GBP/AUD) 

Now around 0.5816 in a sideways pattern, but short term AUD downside looks favoured on this cross on a BoE rate hike come Thursday, immediate support is at 0.5800 then 0.5770.

AUD/EURO (EURO/AUD)

Now at 0.6598 and AUD continues to soften on this cross, next support level is 0.6556 and if the trend continues should be tested in the next few days.

AUD/YEN

The AUD continues to trend lower on this cross, now at 86.85 with immediate support at 86.54. BoJ statement later today is expected to hold the line with current policy but the weaker AUD/USD trend looks to continue to weaken this cross for the AUD.

AUD/CAD

Now at 0.9856 the AUD has ground higher from the 0.9812 low seen at the close of last week, immediate resistance is at 0.9880 and if no surprises from tonight's Canadian data releases look for this level to be tested over the next 2 days.

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Market commentary:

An initial quiet start to the week ahead of a swath of big data releases for the US starting Wednesday, culminating in the Non-farm payroll data on Friday night. Last week closed on a positive note for the US with a solid 3% growth for Q3 GDP, beating expectations of 2.5% for the quarter. Domestic sectors showed some evidence of temporary moderation due to the several large storms over the last couple of months, but expectations remain that the economy is expected to sustain solid real growth in Q4 and out into 2018. Overnight the US equity and bond market was lower and the US dollar softer on reports that the proposed corporate tax cuts would be phased in over several years, earlier markets appeared to shrug off the first charges coming from Special Prosecutor Robert Mueller’s investigation. This week will also see several major central bank events, kicking off with the BoJ policy meeting (today), FOMC meeting and statement (Thu), BoE meeting (Fri), expectations of a 0.25% rate hike and White House announcement of its Fed Chair nominee (Fri). The strong favourite for Fed Chair is now Jerome Powell who is seen by investors as signalling continuity for monetary policy.  The AUD & NZD should largely stay side-lined over the week as focus remains on offshore movements. Both have had big moves against the USD and we expect some consolidation over the next few days ahead of Fridays US payroll data.

Australia

The Australian dollar opens relatively unchanged from Friday’s close, now around 0.7688 against the USD and looks to be in a consolidative phase. New home sales figures for September will be released later today, along with the ANZ business confidence data both are expected to be in line with expectations. More  market reaction is likely to come from the Chinese official PMIs figures for October later today,  with manufacturing expected to have shrunk modestly, but hold in expansionary levels. A disappointing Chinese result could see support at 0.7650 tested a break of which would target 0.7610, conversely a move and hold over the 0.7700 level would bode well for a test later in the week of the 0.7770 mark, but traders will be wary of pushing the AUD hard either way ahead of the payrolls on Friday.

New Zealand

The New Zealand dollar was a little stronger overnight against the USD, up from the 0.6817 lows seen on Friday and now at 0.6872 after an overnight low of 0.6832. Today’s business confidence data should remain fairly unchanged, as the new government has barely got its feet under the desk and as yet has not announced the timing of any major changes/policy reverses. Fundamentals continue to stay largely positive, but with attention on US markets for most of this week, any NZD/USD upside should be held around the 0.6920/50 mark ahead of the US jobs data on Friday. In a release this morning, residential building consents issued fell 2.3% in September. While some decline was to be expected following last month’s surge, the extent of the pullback was more moderate than we had expected. This reflected that there was once again a large number of apartment/multiple consents issued in September. We remain expectant of a bounce in the NZD/USD rate after such a steep decline, but the overhang of US data this week is likely to keep the NZD on the defensive.

United States

U.S. equity markets were lower with small cap stocks bearing the brunt of selling, and Treasuries advanced as markets struck a tone of caution at the start of a week stuffed with data catalysts and Central bank meetings.  The S&P 500 Index retreated from record highs, amid reports that proposed cuts to corporate taxes would occur in phases over several years. Markets generally shrugged off the first charges from Robert Mueller’s investigation. Market heavyweight Apple, was higher on signs of strong demand for its latest phone, buoying the Nasdaq 100 Index. The company headlines another week of major earnings, with its report due Thursday. The major releases for the US this week expected to potentially be market events are;  ADP Employment Change , ISM Manufacturing,  FOMC Rate Decision ( No change in policy is expected),  Initial Jobless Claims,  Unemployment Rate,  Average hourly Earnings MoM Average Weekly hours,  ISM Non-Manufacturing. All these start from Wednesday and calumniate in the Nonfarm payrolls figure on Friday. Most of the data is expected to show that the US economy continues to grow with the payrolls data on Friday forecast to show in around +300K jobs created in October with the unemployment rate remaining constant at 4.2% Overall market expectations are that the consistent data over the last few months puts the Fed on-track for a rate hike of 0.25% to next month.

Europe

The EUR continues to languish after the ECB comments last week on maintaining near-zero rates for as long as necessary. Data out last night for Germany was positive, showing the inflation rate in Germany as measured by the consumer price index is expected to be 1.6% in October 2017 but still below expectations. Adding to the more positive tone was the Eurozone Economic Sentiment Indicator (ESI) beating expectations and increasing from 113.1 to 114 in October, rounding out the October surveys, which points to a strong start to Q4. The result indicates that strong economic activity is continuing. This shows political tensions continue to have little effect on economic sentiment this year, with Spanish economic sentiment increasing as well, despite the Catalonian situation heating up. The surprisingly healthy economy trumps political risks in terms of sentiment for the meantime. Later tonight, the EU will release its preliminary Q3 GDP, expected to show that the economy grew by 0.5% in the three months to September, below previous 0.6%. The steady growth, but soft inflation story continues to support the ECB's stance of maintaining QE alive, negative for the common currency. Currently the EUR/USD is trading back at 1.1636 after a 1.1574 low on Friday, however it is still below the critical resistance at 1.1660. Given the large US data dump over the next few days , we favour another test of downside at 1.1600 then 1.5775  followed by 1.1550 if US data remains positive.

United Kingdom

Major news for the UK this week, will centre on the Bank of England rate announcement on Thursday, which is expected to increase rates by 0.25%. Although to some extent already built into the rate, the UK pound strengthened overnight against most of its trading partners as investors aligned their portfolios in anticipation of the BoE move. Release yesterday of mostly in-line/better-than-expected UK consumer credit data - net lending to individuals and mortgage approvals, also helped reinforce the recovery of the GBP/USD  back to the 1.3200 level. Currently the GBP/USD is trading just over the 1.3200 level at 1.3205 but still a little away from threatening the 1.3220 resistance level. Hawkish comments from the BoE accompanying any rate hike may see this level breached and a move onto the 1.3260 resistance level, however any significant moves higher are likely to be tempered by the continuing Brexit negotiation overhang.

Japan

The USD/JPY opened the week trading at a 5 day low of 113.02 against the USD and overnight dropped further to 112.98 before bouncing back to 113.16 where it currently sits. The Bank of Japan is having a monetary policy meeting later today, although no changes are expected to the ongoing stimulatory policy given they see no clear issue with the economic climate, with evidence of solid corporate business conditions in the BOJ September Tankan survey. However we believe that Core CPI inflation is likely to be weaker than the BOJ projected, but is on a moderate uptrend and we expect the BOJ to keep its assessment that inflationary momentum is being maintained. Short term outlook for the USD/JPY looks bearish, with immediate support at the 112.90 level, on a drop below that level, the negative momentum will likely accelerate, with scope then to test 111.60 if US data is disappointing later in the week. Conversely if US data is solid, a break of resistance at 113.60 is likely to see a push on to the 114.05 mark.

Canada

The Canadian dollar opens the week on the defensive against the USD, with the USD/CAD currently around 1.2835. Trading has been directionless trading in a relatively narrow 1.2820/1.2840 band. Later tonight will see August monthly GDP growth and Industrial Product Price Index from Canada, released ahead of the BoC Governor Poloz's speech later in the day. The US data releases from Wednesday on, should keep the CAD under pressure, support for the USD/CAD is at 1.2780 with resistance at last week's high of 1.2915 then 1.2975.

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