NZD was under pressure from resurgent USD, to currently trade at 0.7153; NZD lost ground to its Australian cousin over the past week, pulling back from what were surprisingly elevated levels

By Neven Fisher*:

Wall street closed last week down around 1% with tech stocks underperforming. Performance so far this week has been somewhat underwhelming as well with indices failing to stage any sort of recovery. Equities are not being helped by interest rates increases, with the US 10-year knocking of the door of 3%. It’s a massive level technically, and psychologically, and a break above 3% may well see quick move to 3.25% develop. It would also provide confirmation in many trader’s eyes, that bonds are now in a long-term bear market. That’s something the stock market should be very concerned about. News over the weekend that North Korea has suspended its Nuclear programme has been welcomed, albeit with a healthy dose of scepticism. It remains to be seen if Kim Jong Un is simply looking to gain concessions, only to restart the programme over the coming years, or if he genuinely wants a better relationship with the rest of the world. But from a geo-political point of view, it’s step in the right direction.

Major Announcements last week:

  • Bank of Canada leave interest rate unchanged at 1.25%
  • NZ CPI 0.5% vs 0.4% expected
  • Australian Employment Change +4.9k vs +20.3k expected
  • Australian Unemployment Rate 5.5% as expected
  • UK Retail Sales -1.2% vs -0.5% expected
  • Canadian CPI 0.3% vs 0.4% expected
  • Canadian Retail Sales 0.0% vs 0.4% expected

NZD/USD

The New Zealand dollar (NZD) was under pressure from resurgent United States dollar (USD) all last week. From a high at the beginning of the week of 0.7372, the NZD was pressured relentlessly to close the week out close to its low of 0.7199. Although USD gains were broad based, the NZD certainly underperformed losing ground on a number of other crosses as well. In the past 12 hours the USD has made further gains pushing the NZD down below support around 0.7180 to a fresh 2018 low at 0.7146. Momentum is firmly to the down side and this move may well look to test 0.7000 over the coming weeks. With little on the local economic calendar, attention will turn to offshore releases, particularly Core Durable Goods orders and US Advance GDP toward the end of the week.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.7153 0.7000 0.7180 0.7146 - 0.7372

NZD/AUD (AUD/NZD)

The New Zealand dollar (NZD) lost ground to its Australian cousin over the past week, pulling back from what were surprisingly elevated levels. Has the relentless march higher in the cross, that started late last year, finally come to an end? It’s too early to say, but we’ve certainly been of the opinion that the pair is overvalued and so we’re happy to see some weakness. The key level to now watch is the 0.9370 area. Any significant break below there would likely encourage further selling, opening the way from a much bigger pullback. It would also be a signal that a significant top has been put in place and that the risks have all swung back to the downside.  Australian CPI data due out in the next couple of hours will be key in deciding near term direction, and potentially the fate of the support at 0.9370.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9401 0.9370 0.9530 0.9371 - 0.9476
AUD / NZD 1.0637 1.0493 1.0672 1.0553 - 1.0671

NZD/GBP (GBP/NZD)

Both the New Zealand dollar (NZD) and the Great British Pound (GBP) saw periods of pressure last week and as such the cross rate chopped back and forth in a volatile, but reasonably tight, range. There was little overall direction however, and that remains the case in the early stage of this week. With a BOE interest rate hike in May now far from certain, the NZDGBP cross is finding some support on dips toward 0.5100. We expect that to remain the case over the course of this week.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5129 0.5100 0.5200 0.5112 - 0.5165
GBP / NZD 1.9496 1.9231 1.9608 1.9362 - 1.9562

 NZD/CAD

Like most New Zealand dollar (NZD) crosses, the Kiwi has declined against the Canadian dollar (CAD) over the past week. The pair has put in a decent bounce from the recent lows of 0.9129, helped by disappointing Canadian economic data out on Friday, but so far the broader downtrend has not being threatened. As such the risks remain toward further NZD downside over the coming week. This bearish move could ultimately end up targeting support around 0.9000.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9186 0.9100 0.9300 0.9129 - 0.9271

NZD/EURO (EURO/NZD)

We have seen a relentless march lower for this cross rate as the New Zealand dollar (NZD) has underperformed the Euro (EURO) in the face of broad based USD strength. Initial support is now not far away, around 0.5830, and that may contain the pair in the very near term. Any break below there however would open the way for deeper declines toward the December 2017 low of 0.5722. The main focus for the week will be on the ECB’s interest rate decision on Thursday.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5858 0.5830 0.6000 0.5853 - 0.5952
EUR/NZD 1.7071 1.6667 1.7153 1.6802 - 1.7084

NZD/YEN

New Zealand dollar (NZD) underperformance has been the theme of the past week and it’s evident in this cross as well. The NZDJPY has fallen from a high of 79.61 on the 13th April, to currently trade at 77.69. We look for this downside move to extend to at least 77.10 in the coming days. There is some support around 77.10 and the market’s reaction at that level will be interesting to watch. There is little in the way of NZ economic releases this week to drive the market, but from Japan we have a raft of releases, including the latest Bank of Japan Monetary Policy statement, on Friday.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 77.76 77.10 79.60 77.46 - 78.94

AUD/USD

The Australian dollar (AUD) suffered at the end of last week, driven lower by a resurgent United States dollar (USD). Disappointing Australian employment change data on Thursday didn’t help, but the move was really more about USD strength, than Australian dollar weakness. In the past 12 hours further USD gains have driven the AUD down below a key support zone. That zone was between 0.7620 and 0.7650, and the brake below there is a bearish signal. We now expect further downside price action over the coming days and weeks. The initial target is 0.7500, but this move has potential do go much lower than that. Key to very near-term price action will be today’s release of Australia CPI. As long as the AUDUSD now stays below 0.7650, our view will remain bearish.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7604 0.7500 0.7650 0.7600 - 0.7812

AUD/GBP (GBP/AUD) 

The Australian dollar (AUD) has been range bound between 0.5405 and 0.5505 against the UK Pound (GBP) for much of the past month. Over the past week the upper end of that range was tested as the GBP came under pressure in the wake of poor data and doubt about a May interest rate hike from the Bank of England. We look for more choppy price action within the previously defined range over the course of this week. The big risk to that outlook comes from Australian inflation data set for release in the next couple of hours. A surprise jump in inflation will no doubt see 0.5505 resistance come under increasing pressure.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5454 0.5405 0.5505 0.5412 - 0.5500
GBP / AUD 1.8335 1.8165 1.8501 1.8181 - 1.8477

AUD/EURO (EURO/AUD)

The Australian dollar (AUD) has suffered against the Euro (EUR) this week trading to a low last night of 0.6227. The move is a continuation of the declines that started in the wake of last week’s soft Australian employment numbers. Since then the AUD has underperformed most other currencies in the face of broad based USD strength. Today’s Australian inflation data will be key to near term direction, but with the current bearish trend firmly entrenched, it would take a surprisingly strong result to turn the market around. If we get a soft inflation figure, the 2018 low of 0.6177 will be a target.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6228 0.6177 0.6270 0.6227 - 0.6309
EUR/AUD 1.6057 1.5949 1.6189 1.5850 - 1.6059

AUD/YEN

This pair saw sharp declines in the latter stages of last week, driven lower by soft Australian employment data. So far this week the pair has consolidated in a tight range around 82.60, but that could all change in a few hours’ time with Australian inflation data hits the wires. That release will be the driver of the AUD over the next few days. Support is seen around the 82.00 mark, while on the topside there is resistance toward 83.40.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 82.67 82.00 83.40 82.44 - 83.94

AUD/CAD

The past week has seen choppy price action for this pair, but little overall direction. Both the Australian dollar (AUD) and the Canadian dollar (CAD) have seen periods of pressure and as such the cross rate has whipsawed back and forth. The volatility is far from over as well with key Australian data in the form of inflation set for release in the coming hours. Support is seen around 0.9720, while resistance comes in around 0.9850. Any break below 0.9720 would target 0.9600.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9765 0.9720 0.9900 0.9728 - 0.9858

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Market commentary:

Wall street closed last week down around 1% with tech stocks underperforming. Performance so far this week has been somewhat underwhelming as well with indices failing to stage any sort of recovery. Equities are not being helped by interest rates increases, with the US 10-year knocking of the door of 3%. It’s a massive level technically, and psychologically, and a break above 3% may well see quick move to 3.25% develop. It would also provide confirmation in many trader’s eyes, that bonds are now in a long-term bear market. That’s something the stock market should be very concerned about. News over the weekend that North Korea has suspended its Nuclear programme has been welcomed, albeit with a healthy dose of scepticism. It remains to be seen if Kim Jong Un is simply looking to gain concessions, only to restart the programme over the coming years, or if he genuinely wants a better relationship with the rest of the world. But from a geo-political point of view, it’s step in the right direction.

Australia

The Australian dollar (AUD) struggled last week against most other currencies, although it did outperform the New Zealand dollar (NZD). The key release last week was Australian Employment Change that printed below forecast at +4.9k. This week the focus is firmly on inflation data due out in a few hours’ time. The market is looking for a quarterly increase of 0.5%, down a touch from the prior quarters 0.6% result. That would put the year on year rate of inflation at 1.85%. That is below the RBA’s 2-3% target, which has been the case for more than 2 years now. The RBA expect underlying inflation to slowly climb back to 2% over the next couple of years. With that sort of outlook, it would be foolish to expect the central bank to adjust the cash rate any time soon.

New Zealand

While last week’s inflation data was a touch higher than the market expected, it was below the RBNZ’s forecast and it provided only very temporary support the NZD. The local currency ended the week lower, underperforming in the face of broad based USD strength. This week will likely be a quiet one with a bank holiday on Wednesday and only migration data and trade balance data set for release.

United States

The United States dollar finished the week on the front foot making broad based gains against all other G10 currencies. The USD was no doubt helped by rising US Treasury yields with the US 10-year pushing up to 2.99%. The 3.00% level is a key psychologically barrier, and a move above there would further pressure stock markets. The Fed’s Kashkari was in the press over the weekend stating that although inflation and wages are slowly climbing, they’re not accelerating. He also raised concerns about the general flattening of the US yield curve, echoing what other Fed officials have said recently. He suggested that the flattening of the yield curve suggests the Fed is close to the neutral rate (the interest rate which neither stimulants or restrains the economy). The USD has struggled over the past couple of months, despite generally supportive economic data, Fed interest rate hikes, and a sharply higher LIBOR rate. It remains to be seen if this week’s recovery in the USD is the start of a much bigger correction, something we think is overdue. This week to draw focus we have CB consumer confidence, Core Durable Goods orders and Advance GDP.

Europe

Recent data out of Europe has been a little disappointing, but Friday’s release of Consumer Confidence countered that trend. Eurozone Consumer Confidence for April rose 0.4% against expectations of a 0.1% fall. European Central Bank (ECB) president Draghi was on the wires quoted as saying “Notwithstanding the latest economic indicators, which suggests that the growth cycle has peaked, the growth momentum is expected to continue”. He added that patience, persistence and prudence are needed and that confidence in the inflation outlook as increased. We will hear more from Draghi on Thursday when the ECB have their latest interest rate meeting. Ahead of that release we have a raft of PMI’s from the manufacturing and service sectors along with the German IFO Business Climate index.

United Kingdom

The Great British Pound (GBP) suffered last week in the wake of poor data releases. Inflation and retail sales were the key data points that did the damage with many in the market starting to second guess whether or not the Bank of England will now hike interest rates in May, something that seems an almost certainty only a few weeks ago. A recent BBC interview with Governor Carney has sown even more doubt. He noted the recent softer than forecast results and said there was still a lot of data to consider before the Monetary Policy Committee (MPC) can decide when to hike interest rate. So that’s far from a done deal then, and the GBP price is reflecting that. That BOE meeting is just over two weeks away on the 10th May. This week we have CBI Realized Sales numbers, Consumer Confidence and the Preliminary reading of GDP.

Japan

Data yesterday showed that Japanese manufacturing activity picked up in April from the previous month. Manufacturing PMI rose to 53.3 from 53.1 prior, potentially signalling the economy is recovering from a rough patch in the first quarter. The Bank of Japan (BOJ) is far from even considering adjusting monetary policy however, with comments from Governor Kuroda recently saying “In order to reach the 2% inflation target, I think the Bank of Japan must continue very strong accommodative monetary for some time. It’s necessary.” We will get to hear more from Kuroda on Friday when the BOJ releases is latest Monetary Policy Statement. Ahead of that we also have Retail Sales, Industrial Production, Tokyo Core CPI and the unemployment rate.

Canada

The Canadian dollar struggled into the close of last week pressured by a couple of soft economic releases. Retails Sales ex-auto came in flat, against and expectation of +0.4%, and inflation data also disappointed printing at 0.3% against forecasts of 0.4%. Despite missing expectations for the past month, consumer prices in Canada up 2.3% year on year in March, the largest increase since October 2014, and the Bank of Canada’s Governor Poloz was quick to say he’s not at all concerned about above target inflation. He said the BOC has a 1 to 3% range for inflation and it does not mechanically raise interest rates when inflation goes about 2%. His comments did little to stop the rot in the Canadian dollar which has remained under pressure in the early stages of this week.

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USD 
NZD
End of day UTC
Source: CoinDesk

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