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Geopolitical issues affected currency markets with North Korea concerns rearing its ugly head once again; EUR gaped higher on the weekly open up 30 points to 1.1680 with the populist parties failing to form a government; NZD continued to push higher

Currencies
Geopolitical issues affected currency markets with North Korea concerns rearing its ugly head once again; EUR gaped higher on the weekly open up 30 points to 1.1680 with the populist parties failing to form a government; NZD continued to push higher

By Neven Fisher*:

Markets closed lower to end the week as investors took on less risk. Geopolitical issues affected currency markets with North Korea concerns rearing its ugly head once again. The on again off again June 12th meeting between President Trump and Kim Jong seems to be back to track less than 24 hours after Trump’s decision to cancel it. The President initially upsetting Kim Jong Un after sending him a letter outlining his issues for cancelling. Kim Jong Un retaliated with a "nuclear to nuclear showdown" with the US. Trump released a statement saying "talks are very productive" and the summit could still take place on June 12. The minutes from the Fed meeting confirmed the broad view that they would be gradually increasing rates but reiterated growth in the economy would need to be a lot stronger to allow the Fed to hike faster than the prescribed current 0.25% per quarter. The US Dollar Index is trading at 94.00 just off the weekly high of 94.25 with equities stabilizing but they remain bullish. Crude oil has had a good run this year, but we think the downside is limited to around 67.00 which could be tested in the following weeks. With geopolitical problems such as Venezuela in play in a complete shambles, their production numbers will continue to decline over time. This will impact the associated currency the Canadian Dollar trading at levels around 1.3000 currently we may see further upside develop to 1.3600. The EURO gaped higher on the weekly open up 30 points to 1.1680 with the populist parties failing to form a government. Italy's president Sergio Mattarella boycotted attempts to form western Europe's first populist government so in time new elections may will be held. US monthly core durable goods released on Saturday NZ time at 0.9% well up on the expected 0.5% and last month’s 0.0% result pushing buyers into the greenback and showing a resilient demand for April. US Bank Holiday Monday kept markets quiet ahead of US Non-Farm Payroll figures later in the week. Locally we have ANZ Business confidence Wednesday and the G7 meeting taking place in British Columbia.

Major Announcements last week:

  • US and UK Bank Holiday Monday
  • Crude Oil plunges to 67.00 from 72.90
  • US Core Durable Goods prints at 0.9% over 0.5% expectation
  • Canada cash rate remains unchanged at 1.25%
  • Italy Election a disaster
  • Equities markets trade lower on a lack of risk.

NZD/USD

The New Zealand Dollar (NZD) continued to push higher off the low of 0.6850 from 16th May against a recently stronger US Dollar (USD). The kiwi has been choppy but resilient against the favoured US Dollar (USD) as markets have largely chosen to stay clear of risk products such as the NZD with geopolitical uncertainties. In-fact one could argue the NZD has no right trading where it is - 0.6940. Trade Balance figures printing much higher than predicted late last week have carried the support for the kiwi into this week. The RBNZ financial stability report is released Wednesday by Adrian Orr, we expect a hawkish approach to ongoing monetary policy. Buyers of US Dollars should look for a spike above 0.6950

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6930 0.6858 0.6970 0.6889 - 0.6973

NZD/AUD (AUD/NZD)

The New Zealand Dollar (NZD) has broken through 0.9160 resistance against the Australian Dollar (AUD). Trading immediately higher off the weekly open the pair travelled to 0.9210 (1.086) Tuesday. The bearish channel is still in play until a break higher through 0.9230 (1.0830) is broken. Australian Building approvals release tomorrow along with the RBNZ stability Report. As long as the China /US trade war is ends amicably for the Chinese this should create further economic certainty in Australia and lead to a stronger AUD in the medium to long term. Buyers of Aussie - hey it’s still in the 0.90's over 6 cents higher than the historical 20 year average.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9203 0.9132 0.9242 0.9133 - 0.9122
AUD / NZD 1.0866 1.0820 1.0950 1.0856 - 1.0956

NZD/GBP (GBP/NZD)

The Great Bearish Pound (GBP) continued its run lower against the New Zealand Dollar (NZD), continuing last week’s decline from 0.5120 (1.9520) to 0.5220 (1.9160). UK Prelim Business Investment printed down at -0.2% after 0.2% was expected with business investment estimated to have fallen by 46.1B between fourth quarter 2017 and first quarter 2018. This represents a significant shift and could weigh on sentiment for a while. Manufacturing PMI is released on Friday and should reflect a positive result.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5206 0.5150 0.5227 0.5140 - 0.5224
GBP / NZD 1.9208 1.9130 1.9414 1.9142 - 1.9455

 NZD/CAD

As Crude oil prices came off the high of 72.90 we have seen the Canadian Dollar (CAD) depreciate over the past few days. Geopolitical uncertainties with Trump and North Korea have created a risk off market. The (BoC) Bank of Canada should keep rates unchanged at 1.25% Thursday with the target of 2% slowly coming into play. The New Zealand Dollar (NZD) has reached 0.9020 which is a sizeable gain of over 120 points on the week bouncing off the earlier level of 0.8790, the lowest level since November 2017. The downtrend momentum has been broken when the pair broke through 0.8900 but we are still just below the key 40 day moving average for further upside movement.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9000 0.8919 0.9065 0.8858 - 0.9037

NZD/EURO (EURO/NZD)

The New Zealand Dollar (NZD) extended its gains on the EURO (EUR) after the pair spiked to 0.5990 (1.6700) on the weekly open. The would be coalition government formed in Italy has collapsed after President Sergio Mattarella rejected the nomination of Paolo Savona for Finance minister, as he said previously he wanted Italy to leave the eurozone. The EUR has battled since. With the pair trading just under large resistance of 0.6000 (1.66) it could be a good time to buy as we don’t see the NZD bouncing above this area.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5960 0.5880 0.6050 0.5861 - 0.5985
EUR/NZD 1.6778 1.6530 1.7010 1.9142 - 1.9455

NZD/YEN

Investors sought the safer Japanese Yen (JPY) over the week as markets looked for answers as to the Trump, Kim Jong Un 12 June meeting would take place. The meeting has had its fair share of expected issues. The JPY has been the bearer of the safe haven purchase as uncertainties remain. The New Zealand Dollar (NZD) has been to 77.40 mid last week but trades midday Tuesday around 75.50 as it looks for direction. Boosting the JPY was a stronger than expected (PPI) producer Price Index as it printed at 0.9% for April well above the expected 0.5%, the largest gain since September 2017. Buyers of JPY should have taken advantage of the spike to 77.40 as we mentioned last week, 75.80 doesn't represent good buying as the pair battles to come off lows.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 75.52 75.35 76.00 75.38 - 77.50

AUD/USD

After three weeks of strength for the Australian Dollar (AUD) versus the greenback, momentum looks to have come to an end with the pair dropping below support of 0.7530. Near term support is now seen at 0.7480 as the cross trades below the 40 days moving average. A slow start to the week with US Memorial Day taking place saw thin volume. The iron ore price remains stable for now trading around 63.00 per tonne with Australia producers remaining calm on the understanding that China is sorting its steel oversupply problem and the demand for steel stays strong. If sentiment spreads for weakening demand the Australian Dollar (AUD) could take on water and retest 0.7400. Watch for volatility later in the week when US Non-Farm Payroll publishes.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7526 0.7500 0.7610 0.7516 - 0.7605

AUD/GBP (GBP/AUD) 

The British Pound has depreciated further for the fifth straight week against the Australian Dollar (AUD) trading to 0.5670 (1.7630) as investors preferred the Aussie over the dysfunctional Pound. The pair has not retracted back to 0.5630 (1.7750) as we thought it would last week instead extending gains. UK Prelim Business Investment printed down at -0.2% after 0.2% was expected with business investment estimated to have fallen by 46.1B between fourth quarter 2017 and first quarter 2018. This represents a significant shift and could weigh on sentiment for a while. Manufacturing PMI is released on Friday just prior to US Non-Farm Payroll figures.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5650 0.5620 0.5685 0.5621 - 0.5685
GBP / AUD 1.7762 1.7590 1.7800 1.7589 - 1.7791

AUD/EURO (EURO/AUD)

The Australian Dollar (AUD) has continued its push higher against the struggling EURO (EUR) with the pair reaching 0.6500 (1.5370) as the EURO was flogged. The Italian election has weighed on the currency as uncertainty increases. A snap election is now on the cards. If Italian were to cast a vote against the EU at fresh elections this would bring to the table the bloc’s biggest challenge. Italy is the third largest economy and heavily in debt which represents a potential threat to the EUR than the Greek economic crisis. The EUR should extend its five week fall lower over the coming days with resistance seen at 0.6570 (1.5220)

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6471 0.6410 0.6500 0.6404 - 0.6504
EUR/AUD 1.5453 1.5370 1.5600 1.5374 - 1.5616

AUD/YEN

Risk averse markets took hold of the Australian Dollar (AUD) in recent days as investors sought the safer Japanese Yen (JPY) across as range of JPY pairs. Against the Aussie Dollar (AUD) the pair is currently trading at the two week low of 82.25 with further downside expected. Boosting the JPY was a stronger than expected (PPI) Producer Price Index as it printed at 0.9% for April well above the expected 0.5%, the largest gain since September 2017. A further retest of 81.15 is creeping closer. Kuroda speaks Wednesday along with Aussie Building Approvals.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 82.05 81.80 83.15 81.37 - 84.48

AUD/CAD

After 11 weeks of losses the Australian Dollar has rebounded into positive territory. Trading Tuesday around 0.9800 levels we have seen the Canadian Dollar (CAD) weaken across the board on worse than predicted data and Crude Oil. Crude came off its high of 72.90 below key 70.00 support and looks shaky around the 67.00 handle.  The (BoC) Bank of Canada should keep rates unchanged at 1.25% Thursday with the target of 2% inflation slowly coming into play. NAFTA now looks like its for the moment dead in the water as an agreement won’t take place this year. Robert Lighthizer said recently talks were nowhere close to a deal. We are picking further support for the Australian Dollar (AUD) heading into US Non-Farm Payroll later in the week with a retest of 0.9850 a good probability.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9773 0.9730 0.9830 0.9682 - 0.9838

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Market commentary:

Markets closed lower to end the week as investors took on less risk. Geopolitical issues affected currency markets with North Korea concerns rearing its ugly head once again. The on again off again June 12th meeting between President Trump and Kim Jong seems to be back to track less than 24 hours after Trump’s decision to cancel it. The President initially upsetting Kim Jong Un after sending him a letter outlining his issues for cancelling. Kim Jong Un retaliated with a "nuclear to nuclear showdown" with the US. Trump released a statement saying "talks are very productive" and the summit could still take place on June 12. The minutes from the Fed meeting confirmed the broad view that they would be gradually increasing rates but reiterated growth in the economy would need to be a lot stronger to allow the Fed to hike faster than the prescribed current 0.25% per quarter. The US Dollar Index is trading at 94.00 just off the weekly high of 94.25 with equities stabilizing but they remain bullish. Crude oil has had a good run this year, but we think the downside is limited to around 67.00 which could be tested in the following weeks. With geopolitical problems such as Venezuela in play in a complete shambles, their production numbers will continue to decline over time. This will impact the associated currency the Canadian Dollar trading at levels around 1.3000 currently we may see further upside develop to 1.3600. The EURO gaped higher on the weekly open up 30 points to 1.1680 with the populist parties failing to form a government. Italy's president Sergio Mattarella boycotted attempts to form western Europe's first populist government so in time new elections may will be held. US monthly core durable goods released on Saturday NZ time at 0.9% well up on the expected 0.5% and last month’s 0.0% result pushing buyers into the greenback and showing a resilient demand for April. US Bank Holiday Monday kept markets quiet ahead of US Non-Farm Payroll figures later in the week. Locally we have ANZ Business confidence Wednesday and the G7 meeting taking place in British Columbia.

Australia

The Australian Dollar battled hard towards the end of the week coming in as the strongest currency behind the US Dollar and the Canadian Dollar. The RBA governor Lowe suggested that the central bank would focus on rising debt levels in China and the effects this could have on the Australian economy. Only building approvals publish Wednesday before quarterly private capital expenditure highlight another small schedule for the Aussies. This week’s movement will be largely based on how investors perceive risk in the markets with geopolitical issues still unresolved. The Australian Dollar has opened in positive territory against the US Dollar trading up to 0.7570 with a retest of 0.7600 in order this week. Risks for the AUD are still skewed to the downside with the pair still trading below the 40 day moving average.

New Zealand

Kiwis all around the country are dragging out their heaters as the cold sets in. Those who don't already have their heating sorted are flocking to retail stores after a fairly cold weekend. The kiwi Dollar held steady leading into the weekly close, markets were led by sentiment in particular how the North Korean and US on again, off again meeting of 12 June develops. The NZD has opened the week higher in low volume trading easing past resistance of 0.6930 against the US Dollar. This week’s local calendar starts Wednesday with the RBNZ financial stability report followed by ANZ business confidence Thursday. US Non-Farm Payroll figures Saturday NZ time will give us further insight into how the economy is progressing after worse than forecasted figures release last month we are expecting a solid number.

United States

US bank were closed Monday in Observance of Memorial Day. A day remembering all those armed forces who have died serving the country. It's the counties unofficial start to summer but the rain put a damper on the New York festivities washing out the popular event. Global political tension have eased a little over the weekend in the fight between Kim Jong Un and President Trump with both of them having a crack at the other recently putting uncertainty on the 12 June 2018 meeting in Singapore. The greenback gained against the CAD, EUR and GBP and was marginally lower versus the New Zealand Dollar and the Australian Dollar. The Fed minutes were sightly dovish saying they would continue with their current plan with rate hikes. Non-Farm Payroll is released at the end of the week with an increase in the number of employed people expected to be 190k over last month’s disappointing 164k. We expect another sentiment driven week ahead.

Europe

The EURO (EUR) lost ground over the week down to a low of 1.1650 losing around 1.0% in value against the greenback. North Korea issued a statement saying that the 12 June meeting is still a goer even if the US president is not part of the process. The ECB European Central Bank had a neutral view on policy saying growth could slow but expansions remains strong. The ECB are still not willing to share their plans on what they expect to do in September when its huge quantitative easing program comes to a close. The EURO gaped higher on the weekly open up 30 points to 1.1680 with the populist parties failing to form a government. Italy's president Sergio Mattarella boycotted attempts to form western Europe's first populist government- new elections will be held. This week we have German Retail Sales and Core CPI figures. Italy, France and Germany will take their seats at the latest G7 meeting on global issues.

United Kingdom

The British Pound has depreciated over the past week extending its losses against its rivals. A risk averse market has seen buyers back in the US Dollar after geopolitical uncertainties have remained at the front of recent news. Bank of England governor Carney said interest rates would rise at a gradual pace as the slowdown in the first quarter was only temporary. With US and UK markets closed in observance of Spring Bank holiday markets have been thinned trading. Market participants maintain a bearish view of the Bank of England BoE hiking rates this year, with the Pound GBP being data driven investors will be watching growth and inflation indicators over the coming weeks with recent data falling well short of expectations. The main event of the week will be US Non-Farm Payroll Friday.

Japan

The Japanese Yen (JPY) started the week quietly trading at 109.40 against the greenback with a US Bank holiday has seen thin trading. The Japanese inflation figures were stronger than expected with the Producers Price Index showing a strong gain of 0.9% for April, well above the estimated 0.5%. This is the highest gain since September 2017. Japanese unemployment rate printed at 2.5% for the third straight month with The Bank of Japan remaining committed to its easing policy and negative interest rates until inflation has reached the target of 2 percent. Last week Kuroda said the BoJ would be transparent with its exit strategy from its radical easing policy, but said markets should not hold its breath for any major announcements. Markets await Kuroda’s speech on Wednesday for further direction in the Yen.

Canada

The Canadian Dollar (CAD) lost ground against a basket of currencies pushing to a March 21 low of 1.3030 against the US Dollar (USD). The pair has moved out of the consolidating range seen over the past 4 weeks with Oil coming off its high of 72.90 not helping. The Canadian Dollar may remain under pressure this week, the (BoC) Bank of Canada should keep rates unchanged at 1.25%. Thursday with the target of 2% slowly coming into play as economic growth has been steady. As the US Fed will raise rates next month on June 14th this should make the Canadian Dollar (CAD) less attractive to investors. This being said we expect prices to continue north retesting 1.3130.

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