US Federal Reserve and RBNZ to announce monetary policy on Thursday; Fed expected to raise rates but RBNZ expected to hold; NZD direction to be driven by central bank announcements and risk sentiment

By Neven Fisher*:

The US Dollar continues to strengthen despite political uncertainty.

Vladimir Putin has won a landslide victory election, he has hinted this would be his last term as president. Cementing his rule over Russia for another 6 years. He has secured 75% of the vote. Incredibly his total time as President will be 25 years on 2024, he will be 71 years old. The only President to rule longer is Joseph Stalin. The initial targeted voting was expected to be 70% - this turnout looks like it will significantly above this.

South Korea's foreign minister has said the North Korea's leader Kim Jong Un has "giving his word" for the potential denuclearisation at the pending summit in May. In a bizarre turn of events Kim Jong Un said he was committed to scraping North Korea’s nuclear weapons and missile testing plans, surely he won't give up his rights here without a fight for something else?

The US Dollar has been under pressure for most of March due to political uncertainty but looks to be turning a corner with economic data continuing to improve. This week we will see the Federal reserve more than likely raise rates but what will keep things interesting is the clues as to how many hikes we will likely see through to the end of the year. With the market expecting 3 hikes, the market will no doubt view any hawkish tone for a possible 4th hike and subsequently lift the US Dollar (USD) higher.

In contrast the RBNZ could be dovish Thursday when they announce their Cash Rate and statement, some are predicting a small chance of the cash rate dropping to 1.5% from 1.75%. If this eventuates we could see current NZ Dollar (NZD) levels across the board depreciate reasonably quick. The mostly result however is no change from the RBNZ.

The Bank of England will also announce their official Cash rate on Friday with no expectation of any rise above 0.5%, but any hawkish tone in the following announcement may indicate a hike for May's meeting. Further Brexit talks will continue in Brussels at the end of the week with the transition or implementation period being agreed upon Monday. This will mean the UK will leave the EU on the 29th March next year. The long awaited next phase can start with finalising trade details and future EU and UK relationships post Brexit. 

A busy week ahead for financial markets with lots happening to shift markets, with any luck we may see some pairs jump from current ranges.

Major Announcements last week:

  • US CPI m/m 0.2% against 0.2% expected
  • US Core Retail Sales prints at 0.2% over 0.4% expected
  • US PPI m/m 0.2% over 0.1% expectation
  • US Retail Sales -0.1% against 0.3% expected
  • Crude Oil Inventories 5.0M against 2.2M for the week
  • NZ GDP q/q 0.6% based on expectation of 0.8%
  • NZD and AUD trade over 1 cent lower.
  • G20 Meeting in Buenos Aires this week.

NZD/USD

The New Zealand Dollar (NZD) broke lower back through 0.7300 late last week and traveled to a low of 0.7195 overnight. Softer US data bought risk aversion back to currency markets Friday with further talks of trade tariffs and general political uncertainties. The big question is- is this the turning point for the New Zealand Dollar (NZD)? As we head into a busy week of monetary policy with the RBNZ and the Federal Reserve to release Cash Rate numbers, perhaps market participants have finally worked out that the NZD is overvalued. We shall see come Friday if a bounce back to 0.7350 is on the cards, downside momentum through 0.7200 support could spell trouble for the New Zealand Dollar (NZD) with the previous low of 0.6780 15th November closer to home than it looks.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.7245 0.7195 0.7330 0.7196-0.7354

NZD/AUD (AUD/NZD)

The Tasman cross NZD/AUD continues to confuse markets with its stubbornness posting a fresh high this week of 0.9395 (1.0644). Coming off the previous weeks close of 0.9280 (1.0776)  it has extended gains heading into what could be a dizzy ride on the volatility train during the later stages of the week. The New Zealand Dollar (NZD) continues to fear better than its Aussie cousin even with a potential dovish RBNZ stance this Thursday. Trade negotiations have weighed over the Australian Dollar (AUD) during the last couple of weeks. The next significant area of concern for the AUD is 0.9645 (1.0368) with broad risk being to the top side. We may see a small correction back to 0.9250 if the NZD starts to lose support.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9385 0.9233 0.9400 0.7276-0.9402
AUD / NZD 1.0650 1.0640 1.0830 1.3598-1.3896

NZD/GBP (GBP/NZD)

The New Zealand Dollar (NZD) fell back against the British Pound (GBP) over the week to close at 0.5180 (1.9310) with little UK data printing. The Pound has started the week well making further gains against the kiwi pushing it to a low of 0.5128 (1.9500) Tuesday before the GBP kicked back to 0.5168 (1.9350). Markets await the (BoE) Bank of England rate announcement Friday for further direction. We are expecting a hawkish tone with possible word of sooner than expected rate hikes. A busy week for other UK data also, starting with CPI tomorrow and retail sales Thursday. The British Pound (GBP) should be kept transient throughout the week.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5160 0.5050 0.5200 0.5128-0.5281
GBP / NZD 1.9380 1.9230 1.9800 1.8934-1.9500

 NZD/CAD

Same spiel different week regarding the New Zealand Dollar (NZD) ,Canadian Dollar (CAD) cross as the CAD reports further losses, the kiwi extending its gains from last weeks open of 0.9330 through to 0.9470 Tuesday. Canadian data has been woeful of late the only positive reading is the crude oil price back to 62.23 but even this is not helping. Oil production is expected to jump significantly next month in new reports and should have further impact on oil prices and ultimately the lack of any CAD momentum. The next level of concern for the CAD is the resistance area around 0.9750 April 2017, as long as the RBNZ are not to dovish later in the week I would expect recent price action to continue.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9460 0.9360 0.9740 0.9386-0.9516

NZD/EURO (EURO/NZD)

The New Zealand Dollar (NZD) continued its bearish theme from last week into this week slipping through 0.5865 (1.7050) against the EURO (EUR) during early week trading. We see little on the EURO calendar this week to make much difference to prices - just German and French Manufacturing to perhaps give the EUR further energy to make a push back to 0.5750 (1.7400) the 24 November high. RBNZ cash rate announces this Thursday; we expect a dovish monetary statement which could weaken the NZD further. Any EUR buyers who may be waiting for 0.6000 the figure may be holding a while.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5865 0.5747 0.6035 0.5860-0.5947
EUR/NZD 1.7050 1.6570 1.7400 1.6816-1.7064

NZD/YEN

The New Zealand Dollar (NZD), Japanese Yen (JPY) cross trades just above the 76.20 key support level. Last week we saw investors buy JPY in favour of the NZD in risk adverse conditions. This week’s RBNZ decision will be vital for the NZD if it’s going to have any chance of staying above long term support around 76.00- past this point we may be looking at 71-72’s if prospects are not hawkish in the RBNZ statement reading. Look for a break higher back to 78.00 for buyers of JPY to re-enter the market.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 76.95 76.00 78.30 76.08-78.57

AUD/USD

The Australian Dollar (AUD) has posted further loses over the past few days having seen a fresh near-term high Wednesday of 0.7920 against the greenback. It has fallen to a low of 0.7700 this week, this is a yearly low from 19 December as the Aussie remains under pressure. US Building Permits and Industrial Production printed worse than expected but given the US political uneasiness and risk off markets this dragged the Aussie to fresh lows. The US Federal Reserve Cash Rate is announced Thursday along with the much awaited monetary statement which should give us clues as to whether the fed will raise 3 time this year of 4. Either way the Australian Dollar (AUD) continues to battle, with further downside towards 0.7500 -7th December support more likely.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7715 0.7530 0.7920 0.7687-0.7917

AUD/GBP (GBP/AUD) 

The Australian Dollar (AUD) has continued to weaken against the British Pound (GBP) pushing past the support area at 0.5555 (1.8000) it has finally broken out of its range and pushed back to post- Brexit levels, it still has a way to go to trade back at the pre-Brexit level of 0.5075 (1.9700). The Bank of England will keep the cash rate on hold for a while longer Friday but may give hints to further hikes in the following statement. The Pound has a busy week with other significant announcements such as Retail Sales and CPI- significant further movement is expected this week. Buyers of GBP should consider a surging GBP with current levels around 0.5500 (1.8180)

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5495 0.5263 0.5682 0.5478-0.5673
GBP / AUD 1.8198 1.7600 1.9000 1.7626-1.8255

AUD/EURO (EURO/AUD)

The Australian Dollar (AUD) continues to lose ground over its EURO (EUR) counterpart falling to 0.6240 (1.6025) early Tuesday. Having started the previous week at 0.6385 (1.5660) this is a significant shift to the downside showing thin air to 0.6020 (1.6600) support area going all the way back to August 2015. Aussie Monetary Policy Minutes publish Tuesday afternoon and Australian Unemployment figures print Thursday. Current levels represent favourable times for selling EURO, watch for spikes lower over the coming days.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6245 0.6157 0.6370 0.6241-0.6394
EUR/AUD 1.6012 1.5700 1.6240 1.5639-1.6024

AUD/YEN

The Australian Dollar (AUD) continues to fare poorly against the Japanese Yen (JPY) breaking lower down to 81.50 a level not seen since June 2017 and October 2017. At a pivotal level we see no support through to 76.00 if the Australian Dollar (AUD) continues to weaken. This week’s driver in the cross will be mostly risk sentiment with only Australian unemployment date of significance to publish.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 81.90 80.00 84.20 76.08-78.57

AUD/CAD

The Australian Dollar (AUD), Canadian Dollar (CAD) has come of its mid week high of 1.0230 to trade at 1.0008 Tuesday in a move which has bought the CAD back closer to parity.  With close ties to China and President Trump saying he would like to increase tariffs against China this had a detrimental effect on the cross. Until tariff negotiations are finalised we may see further Australian Dollar (AUD) weakness. Look for volatility Thursday with a huge amount of economic data to publish.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 1.0075 1.0000 1.0210 1.0069-1.0242

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Market commentary:

The US Dollar continues to strengthen despite political uncertainty.

Vladimir Putin has won a landslide victory election, he has hinted this would be his last term as president. Cementing his rule over Russia for another 6 years. He has secured 75% of the vote. Incredibly his total time as President will be 25 years on 2024, he will be 71 years old. The only President to rule longer is Joseph Stalin. The initial targeted voting was expected to be 70% - this turnout looks like it will significantly above this.

South Korea's foreign minister has said the North Korea's leader Kim Jong Un has "giving his word" for the potential denuclearisation at the pending summit in May. In a bizarre turn of events Kim Jong Un said he was committed to scraping North Korea’s nuclear weapons and missile testing plans, surely he won't give up his rights here without a fight for something else?

The US Dollar has been under pressure for most of March due to political uncertainty but looks to be turning a corner with economic data continuing to improve. This week we will see the Federal reserve more than likely raise rates but what will keep things interesting is the clues as to how many hikes we will likely see through to the end of the year. With the market expecting 3 hikes, the market will no doubt view any hawkish tone for a possible 4th hike and subsequently lift the US Dollar (USD) higher.

In contrast the RBNZ could be dovish Thursday when they announce their Cash Rate and statement, some are predicting a small chance of the cash rate dropping to 1.5% from 1.75%. If this eventuates we could see current NZ Dollar (NZD) levels across the board depreciate reasonably quick. The mostly result however is no change from the RBNZ.

The Bank of England will also announce their official Cash rate on Friday with no expectation of any rise above 0.5%, but any hawkish tone in the following announcement may indicate a hike for May's meeting. Further Brexit talks will continue in Brussels at the end of the week with the transition or implementation period being agreed upon Monday. This will mean the UK will leave the EU on the 29th March next year. The long awaited next phase can start with finalising trade details and future EU and UK relationships post Brexit. 

A busy week ahead for financial markets with lots happening to shift markets, with any luck we may see some pairs jump from current ranges.

Australia

The Australian Dollar (AUD) came under severe pressure late in the week after President Trump's new chief economic adviser made comment he was unmistakably positive in his support for a stronger US Dollar. Markets back tracked and the Australian Dollar travelled to new lows against its main rivals. The Aussie (AUD) may ironically trade higher over the week on general sentiment if the Fed raises rates and follows through with a hawkish tone. Key data this week is set for release on Thursday with employment numbers. If unemployment prints north of 5.5% it could be further detrimental for the waning Aussie (AUD).

New Zealand

The New Zealand Dollar (NZD) has underperformed to close the week lower against its main opponents, shaken by US political uncertainties and international trade policy. Sending the New Zealand Dollar (NZD) weaker was a raft of positive US data including Industrial Production and University of Michigan consumer sentiment with NZ Business Manufacturing Index printing slightly worse than expected. The RBNZ rate statement is released Thursday and interest rates should remain unchanged at 1.75%, but this is not guaranteed with a couple of market participants suggesting a cut. A bias towards cutting rates at some time in the future could be possible if we see moves in the forecast of inflation expectations. With the Federal reserve to announce their cash rate on Friday and ultimately offering higher interest rates we could see a shift in US equities trading lower which in turn could put increased pressure on the New Zealand Dollar (NZD) long term. Dairy global auction is Wednesday (GDT) with a less than favourable weighted price growth of -0.6% expected.

United States

The US Dollar (USD) gained popularity in the later stages of last week closing in a positive attitude across the board. The US Dollar index is higher comfortably trading above the 90.00 threshold at 90.30. Despite the political uncertainties the Dollar has made up lost ground from earlier in March with stronger than predicted data both monthly industrial production and UoM (University of Michigan) consumer sentiment helping to boost the US Dollar (USD). The G20 meeting this week in Buenos Aires promises to be juicy and potentially confrontational for the US Treasury secretary Steven Mnuchin, he will no doubt field questions from other world finance ministers on Trump’s trade plans and hear pleads for exemptions. The Federal Reserve will announce the new cash rate this Thursday which is 100% priced into market expectations to be raised to 1.75% from 1.5%. The following statement will be key as to possible indications of 3 or 4 rate hikes for 2018, if 4 are hinted one would think this could give the greenback (USD) a lot more muscle. A heavy calendar this week for the US economy should ensure much needed volatility to the markets.

Europe

The EURO (EUR) came off its high of 1.2410 earlier in the week against the greenback (USD) to trade as low as 1.2300 Monday’s low during the Thursday NY Session. It continues to move in a wide range set around 1.2350 levels since late January. US Jobless claims published bang on expectation of 226k as the number of individuals filing for unemployment stabalised. Empire Manufacturing followed surpassing expectation dropping the EUR back to 1.2300 with US Dollar led strength. A move back to the top of the recent band of 1.2500 could be challenging in the near term. Next week is the Federal Funds Rate with markets expecting a hike of 0.25% the first of several to follow since the 0.25% rise in December last year.

United Kingdom

The British Pound (GBP) continued its run north against the US Dollar (USD) pushing back over 1.3900 Thursday. With only Philip Hammond's budget speech to write home about last week the Pound rallied over US led news. Predominantly flat over the last 10 weeks or so the British Pound gained traction continuing last weeks gains from 1.3770 pushing to a high of 1.3995. This week sees both Bank of England (BoE) and Federal Reserve Cash Rate announcements - while the Fed will talk up the economy and raise rates to 1.75% from 1.5% the Bank of England is still embroiled in Brexit related uncertainty and will hold rates steady. If anything, the voting opinions may change more to the persuasion of hiking at May's meeting. The second installment of Brexit negotiations took place Monday with both EU and UK’s chief Brexit negotiators meeting. The transition or implementation period has been agreed and will likely be signed off in Brussels at the end of the week. This will mean the UK will leave the EU on the 29th March next year. The news rallied the GBP back over 1.40 to a high of 1.4085 before falling back a tad. CPI (yearly) with Retail Sales and Producer Price Index all publish this week. This will ensure the week for the Pound (GBP) will continue to be a roller coaster ride.

Japan

Another light week of data for the Japanese nation brought about choppy markets towards the end of last week and flowing into this week. Japan’s Trade Balance Monday showed the economy moving into positive territory coming in at 3.4B against the -.94B the previous month making no real price shift on the Japanese Yen (JPY) against the US Dollar (USD). We have minor Manufacturing data on the Japanese calendar this week, the main driver will be the Federal Reserve hike to rates expected from 1.5% to 1.75%. A break through key support of 105.50 could imply a rapid decline for the USD through to 100.00. I am expecting a lift in the USD back to 118.00 once buyer confidence returns to the Dollar (USD)

Canada

The Canadian Dollar (CAD) continues to weaken against the US Dollar and across the board. Currently it’s trading at 1.3030 which is a 9 month low versus the greenback. Suffering its worst week of depreciation since May 2016 it slid over 2%. Friday's Manufacturing Sales disappointed, a worrying trend as the last few months have also printed terrible. It didn't stop there with building permits and Housing starts also below the expected numbers. This week sees Retail Sales and CPI, if we don't see some sort of improvement in economic data the Canadian Dollar may be looking down the barrel at the 23 April 2017 1.3800 level. As the Fed raise the rates past the current 1.50% this week and later again several times over the course of the year it may get a look at the prior top of 1.4500 coming into play.

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USD 
NZD
End of day UTC
Source: CoinDesk

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