Australia, Canada, Japan and Europe central banks to make interest rate decisions this week; trade war threats see USD lower; NZD traded lower against the USD but retains edge over the AUD

NZD/USD

The New Zealand Dollar (NZD) has traded lower against the US Dollar (USD). Opening the week at 0.7240 it was immediately under pressure falling away to a low of 0.7200 during early sessions. We have another Global Dairy Auction tonight, with the last average price of -0.5% (Feb 21), markets will be expecting a strong number to match the previous 3 going back to December last year. US ISM Manufacturing was slightly above the number expected early Tuesday and pushed the kiwi back towards the earlier low. Non-farm payroll figures will be the highlight of the week Friday and will be crucial for the US economy to keep its momentum and offer an early sign of further US rate hikes. Buyers of the US Dollar (USD) will should consider levels above 0.7200 with volatility expected closing the week.

NZD/AUD (AUD/NZD)

The New Zealand Dollar (NZD) retains the edge over the Australian Dollar (AUD) although it was rejected from key resistance yet again around 0.9385 late last week before closing around 0.9320. This week sees a myriad of data releasing including the RBA announcement this afternoon. RBA Governor Philip may be hawkish but with the pushing out of rate hike projections and mixed results of late he may focus on the fact that an overvalued Australian Dollar is not good for inflation targets and general economic growth. Trading at 0.9320 we may see 0.9385 the previous high if he spooks punters.

NZD/GBP (GBP/NZD)

The British Pound (GBP) made up ground against the New Zealand Dollar (NZD) late last week during the European sessions and has opened the week well trading down through 0.5235 (1.9102) from a high of 0.5287 (1.8914) mid last week. Still we believe the pair to be generally range bound as markets digest the ongoing Brexit developments. Later in the week UK Manufacturing data figures are expected to publish well. The long-term target is 0.5080 (1.9685) the low of late November 2017. The pair still has a way to go to trade back to Brexit levels of 0.4850 (2.06) June 2016.

 NZD/CAD

The Canadian Dollar (CAD) continues its decline against the New Zealand Dollar (NZD) as it extended its gains further over the last few days.  Trading currently at the high of 0.9380 through Tuesday’s local session this also the high of 3 August 2017. There is a slew of Canadian data releases towards the end of the week with Trade Balance, employment change and the all -important monetary policy statement. We may see further weakness in the CAD across the board. The NZD looks towards the previous high of 0.9730

NZD/EURO (EURO/NZD)

The New Zealand Dollar (NZD) has traded lower against the EURO (EUR) in previous days. Dipping below the weeks open, the pair trades at 0.5680 amid EURO elections uncertainty. It may take weeks to formally from an Italian Government with a potential new coalition between the Five Star Movement and the Northern League. The main even in the Eurozone this week will be the ECB meeting where the central bank is expected to leave the interest rate unchanged. The New Zealand Dollar remains under the pump against the EUR with no significant local data to be released except Global Dairy Trade auction. Offshore Eurozone news will therefore drive the pair, the 0.5740 (1.7420) low of November 2017 looks to be a feasible target in the short term.

NZD/YEN

Japanese Yen (JPY) strength has seen the pair slide to a low of 75.96 over recent days as the New Zealand Dollar (NZD) drops in popularity. It has bounced off the long-term low of 76.00 (16 November 2017) early Monday as this level seems robust. If we also go back to April 2017 we note also this level acted as strong support also. The Bank of Japan (BoJ) have a rate announcement later this week, forecasters are expecting a hawkish tone given recent positive inflation targets. Buyers of JPY should watch for a spike to 77.00 and consider options.

AUD/USD

The Australian Dollar opened Monday in a positive mood against the US Dollar pushing aside last week’s dismal effort to trade back at 0.7770. The underachieving Aussie Dollar may come under attack again tomorrow when the RBA make their cash rate announcement. Technically the pair has dropped below the support line of 0.7800, being the 50% retracement of the previous rally from 0.7500 to 0.8110. This makes it extra vulnerable to slip further, the near term October support of 0.7700 is not too far away and could be tested.

AUD/GBP (GBP/AUD) 

The Australian Dollar (AUD) has weakened against the British Pound (GBP) with the Pound looking unstable across the board with ongoing Brexit concerns. Tuesday saw the AUDGBP trade to a low of 0.5587 (1.7900) after Services PMI was published showing moderate expansion and positivity among businesses surveyed. The pair travelled back towards Mondays open soon after, perhaps market makers are expecting a hawkish tone during today’s Cash Rate and statement by the RBA. They will certainly keep the rate unchanged at 1.5% after suggesting in earlier comments they would prefer a softly softly approach to 2018.

AUD/EURO (EURO/AUD)

The EURO (EUR) has broken key support against the Australian Dollar (AUD) during the current cycle of AUD weakness as it has pushed aside 0.6330 (1.5800) during Eurozone election carnage. Somehow the EUR has found strength with investors as buyers continue to see the EUR as good buying. The 0.6190 (1.6130) level of mid 2015 still remains the target as we previously reported, some may say inevitable now, perhaps the RBA later today will give the Australian Dollar some much needed direction.

AUD/YEN

The Australian Dollar (AUD) suffered further losses over the last few days against the surging Japanese Yen (JPY) dropping to a fresh low of 81.48, these levels were last seen in April last year. At the open Monday the Australian Dollar (AUD) has recouped some of the recent losses trading back to 82.50. BoJ will release their cash rate and monetary policy statement Friday but not before the RBA release theirs Tuesday. With a lot riding on building momentum comments will no-doubt be hawkish- expect volatility over the rest of the week. Technically direction is anyone’s guess, I think the BOJ may have the edge eyeing the prior bottom of 81.50

AUD/CAD

Australian Current fourth quarter Trade Balance published weaker than expected coming in at -14B after -12.3B was expected bringing back the AUD/CAD off its high.  As we spoke about in earlier commentary trading above parity was largely expected, watching now the RBA release later today for further upside. Oil prices still Remain vital for the lagging Canadian Dollar, overnight prices dropped to a weekly low of 62.45.

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Market commentary:

This week should prove to be interesting as the market digests the results from the weekend's Italian election, the final make-up of the German government after 5 months in limbo and the apparent enthusiasm for a trade war by the US President. There are also interest rate decisions by Central banks for Australia, Canada, Japan and Europe as well as a raft of economic data for the US culminating in the crucial Non-farm payroll data on Friday night.

President Trump initiated the stage for a trade war last week by slapping tariffs on steel and aluminum imports, daring other countries to retaliate which led the European Union head Juncker, to warn that it would target iconic American brands of Harley Davidson motorbikes, Levi Strauss & Co. jeans and bourbon whiskey from the U.S. In retaliation, the U.S. president put the European auto industry in his cross hairs. Juncker’s threat heightened the prospects of a global free-for-all, as the World Trade Organization said the potential of escalating tensions “is real” and the International Monetary Fund warned the restrictions had potential to cause damage to the U.S. and global economy. With little likelihood of exemptions for US allies, if the tariff net spreads across to soft/agricultural commodities, Australian and New Zealand stand to be affected. Market concern that this issue may escalate saw US equities and the US dollar lower.

This afternoon will see the RBA rate decision, no change is widely expected, then Wednesday will see the Bank of Canada decision, with the ECB on Thursday and the Bank of Japan on Friday. Look for a choppy week in both equity and currency markets.

Australia

The Australian Dollar (AUD) recovered late in the week trading back at 0.7760 levels against the USD. Trump earlier sank the Australian Dollar when he announced he would introduce tariffs to the imports of steel and aluminum, the low of 0.7712 for the week against the greenback the lowest level seen since late 2017. Against its other rivals (GBP, EUR, NZD, JPY) the Australian Dollar (AUD) feared rather poorly, hit hard by investors as they sold the Aussie. This afternoon sees the keenly awaited RBA announcement and statement, no change to the record low of 1.5% is expected.

New Zealand

The New Zealand Dollar (NZD) lost further value last week falling to a low of 0.7180 against the greenback. As risk off markets continue, business confidence looks shaky and this may have an impact over ongoing growth and employment. Recent data has been solid with ANZ commodity prices printing at 2.8%, stronger than the prior 0.7% in early February. The Global Dairy Index is Wednesday night, the results of which will be important after results of 8th Feb were poor. Markets are optimistic the results should be back on track after 3 consecutive increases earlier in the year. US Non- Farm Payroll releases at the end of the week.

United States

US Equities regained lost ground early this week, the Nasdaq back over 7300 and the DOW also trading up 1% to 24786 Tuesday after Trump tweeted overnight that tariffs would not be necessary if trade agreements ie NAFTA were satisfactorily re-negotiated. Tariffs on steel and aluminum will only come off if new fair NAFTA agreement is signed. He also signalled that his announcements regarding these tariffs were a little hasty and may not be implemented at all. The US Dollar (USD) remains in a position of strength the US Dollar Index trades at 90.03. Non-Farm Payroll is released later this week and should offer further indications on the recovery of the economic situation in the US

Europe

Large swings over the previous few days, in fact last couple of weeks, has seen the EURO (EUR) trade to all corners, perhaps we may see some much needed stability this week although I doubt it with the Italian Election results a major concern. No party or Bloc appears to have won enough votes from the Italian election to cease control of the country’s legislature, but markets remain nervous as the Five Star Movement look set to become the largest single party with 32% of the vote with most of the districts declared. The EUR miraculously seems to be holding its own against the greenback trading around the Monday open of 1.2330 after taking a short lived dive back to 1.2260 in early trading. If the political situation doesn’t improve in a hurry though markets may make a play for the safe haven currencies and exit the EUR. Angela Merkel secured her fourth term in power after the Social Democratic party (SPD) agreed to back another coalition deal.

United Kingdom

The British Pound (GBP) has lost ground over the last few days against its closest rivals amid further Brexit talks. Markets remain nervous around –where to from here. Theresa May gave her much awaited speech on her vision for the future between the United Kingdom and the European Union. The Brexit agreement should rest on “five Foundations” – Reciprocal binding commitments to ensure fair competition. A complete independent arbitration mechanism to resolve disputes. An ongoing dialogue with the EU. An agreement for data protection and measures to maintain links between people. She was mocked during the delivery of her speech after what was described as a bizarre backdrop of fake bricks. Punters calling it Bricksit. Manufacturing Production is published at the end of the week with 0.2% expected.

Japan

The Japanese Yen (JPY) continued its bullish run against the USD Dollar (USD) closing the week at 105.50 levels. Japanese Market Services PMI for February was expected at 52.0 from the previous 51.9, the pair pushing to its lowest level since November 2016 before regaining some lost ground early Monday. The continued sell off in USDJPY comes with a risk averse market triggered by Trump’s comments regarding tariffs. BOJ Kuroda made comment that if inflation keeps rising at the current pace it should reach the BOJ’s fiscal target of 1.4% in 2019. Friday sees the Bank of Japan Interest rate review along with the Monetary Policy Statement, markets are expecting a hawkish tone, if so we could see USD/JPY to be trading back towards the 105.00 area.

Canada

The Canadian dollar pushed to its weakest level since June last year against the US Dollar (USD) at 1.3000. Opening last week around 1.2620 it has continued to suffer against its closest rivals. The economy slowed in January after GDP posted a weaker expectation. Not only did Trump talk of import steel and aluminum tariffs but the CAD suffered a double blow after NAFTA negotiations remain unclear. Canadian policy makers continue to look for positives after the Trump administration continues to rain down on Canadian progress. I suspect the headache may continue for a while let’s not forget that 80% of exported products end up in the USA. Its thin air through to 1.3800 for the US Dollar the previous top of April 2017. Oil trades off its low of 62.45 to 62.61 per barrel.

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