Markets saw last week out on a positive note; NZD has enjoyed rally against the USD over the last few days as USD bulls take a breather and risk appetite has increased; NZD is now back around 0.9160 AUD

By Neven Fisher*:

Markets saw last week out on a positive note as the June US Non-Farm Payrolls figure came in ahead of estimates at 213K with an upward revision of May data to 244K. The Unemployment Rate was modestly higher due to an increase in the participation rate, up from the 3.8% level previous, to 4%.

There was little negative market reaction on Friday to the news that the US introduced tariffs on $34bn of Chinese goods, or that China had immediately retaliated by imposing a similar 25% tariff on 545 US products - also worth a total of $34bn. Global equity markets along with risk-linked currencies actually pushed higher on the announcement, another example of sell the rumour buy the fact.

This week brings more political events with US President on a trip to Europe meeting with other European leaders at the NATO summit at towards the end of the week and then a meeting with Russian president Putin on Sunday….given past events over  Trump's discussions at last month’s G-7, markets are bracing for further volatility.

There was more positive news around Brexit over the weekend with UK PM May, gaining cabinet support for a pro-business plan which includes a free trade area for industrial and agricultural goods, based on a "common rule book" and a "combined customs territory" saw the UK pound gap higher on the open yesterday.

Also this week are several central bank speeches which may be helpful pointers for future direction, BOJ Governor Kuroda, ECB President Draghi and BOE Governor Carney all address an audience at some point this week. The Bank of Canada will hand down their rate decision on Thursday; and the ECB release their monetary policy minutes.

New Zealand and Australian markets opened the week on a more positive note with both currencies higher on a softer US dollar and taking advantage of a higher appetite for risk.

Major Announcements last week:

  • 7 July tariffs start for 36B worth of China Products
  • Boris Johnson resigns, GBP falls away
  • UK Manufacturing prints at 1% up from -1.4% expected
  • German Economic Sentiment takes a hit releasing down on predictions

NZD/USD

The NZD has enjoyed rally against the USD over the last few days as USD bulls take a breather and risk appetite has increased….currently sitting around 0.6844 with first resistance at 0.6860 and with little in the way of local economic data to drive the kiwi higher, look for direction to come from offshore...a break of 0.6920 would signal further gains but we view this as unlikely. A fall below 0.6750 would target previous lows around 0.6685/90.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6849 0.6770 0.6920 0.6688 - 0.6858

NZD/AUD (AUD/NZD)

After a high of 0.9196 yesterday the NZD is now back around 0.9160 ...the NZD looks as if it has run out of puff on this cross and if Aussie data remains positive look for a test of the 0.9120/25 level over the next day or so….medium term we favour a return to previous lows at the 0.9090 mark, a break of which would see 0.9025/30 targeted..

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9153 0.9100 0.9250 0.9097 - 0.9212
AUD / NZD 1.0916 1.0810 1.0989 1.0855 - 1.0992

NZD/GBP (GBP/NZD)

Choppy trading in this cross as the Brexit train crash continues to get worse...after starting the week by gapping higher the GBP is back under pressure as key members  of  May’s government resign...the NZD opened at 0.5120 on Monday morning bit quickly bounced to the 0.5185 level as news of the turmoil in the UK government surfaced...now back around 0.5168 but given the ongoing Brexit crisis, we favour NZD upside on this cross and look for another run at the 0.5185 level over the next day or so.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5166 0.5120 0.5200 0.5096 - 0.5181
GBP / NZD 1.9357 1.9230 1.9531 1.9300 - 1.9622

 NZD/CAD

The New Zealand Dollar (NZD) has continued its push higher against the Canadian Dollar (CAD) for the second week bouncing nicely off Fibonacci levels around 0.8830 to register a fresh high of 0.8970 Tuesday. Canadian Unemployment data published above expectations of 22.3K at 31.8K but offered minimal support for the CAD with unemployment higher at 6.00% with markets predicting 5.8%.Crude Oil continues to trade at heightened levels but is trading below 74.00 currently. Bank of Canada (BoC) cash rate is published later in the week with a forecasted hike to 1.50 from 1.25% but with NAFTA risks dragging on its possible they BoC may not raise rates.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8978 0.8830 0.9040 0.8832 - 0.8983

NZD/EURO (EURO/NZD)

After a low last week at 0.5755 the NZD is back around 0.5826 and with the ECB cautionary stance on rate hikes allied with a cautionary RBNZ this cross looks to be marking time over the short term...New Zealand data continues to remain soft , but then news from the Eurozone is not much better and the looming trade war scenario should cap any EUR rallies.
Look for trading to remain inside the 0.5795-0.5830 over the next day or so.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5827 0.5740 0.5830 0.8832 - 0.8983
EUR/NZD 1.7161 1.7153 1.7421 1.7157 - 1.7378

NZD/YEN

The New Zealand Dollar (NZD) looks to have broken key support around 75.00 against the Japanese Yen (JPY) trading Tuesday to a high of 76.00 where it sits currently. Risk in the markets has improved over the last few days with investors exiting the JPY and buying more risk. With limited economic data to come we think the pair will chug higher to retest 76.80 this week. NZ Retail spending has helped buoy the kiwi after publishing at 0.8% a little stronger than economists were expecting. Buyers of JPY should consider levels around 76.00- 77.00 before further weakness resumes.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 76.04 75.15 76.80 74.10 - 76.07

AUD/USD

With USD bulls taking a breather and risk-on trend continuing, the AUD has enjoyed a high of 0.7483 overnight, its highest since June 14th, underpinned by a recovery in base metals and broad dollar's weakness….The AUD has drifted back to the 0.7472 level ahead of today’s NAB Confidence survey and Chinese inflation data….upside is favoured in the short term with 0.7490 immediate resistance.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7479 0.7400 0.7530 0.7316 - 0.7483

AUD/GBP (GBP/AUD) 

Choppy trading in this cross as the Brexit news continues to create volatility for the GBP...has been in a 0.5661-0.5583 range over the last 24 hours and currently back around 0.5643 ahead of the Aussie business confidence data and Chinese inflation figures….given the current UK political turmoil we favour the AUD on this cross and look for a further test of the 0.5660 level over the next day or so...

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5640 0.5565 0.5670 0.5569 - 0.5658
GBP / AUD 1.7730 1.7636 1.7969 1.7674 - 1.7957

AUD/EURO (EURO/AUD)

The AUD is currently sitting around the 0.6360 mark, up from a 0.6324 low overnight...data looks to favour the Aussie more than the EUR currently and with commodity prices continuing to hold firm, look for the AUD to stay well bid against the EUR on this cross ...further ructions from the NATO meeting later this week with President Trump also have potential to negatively affect EUR levels..

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6358 0.6310 0.6370 0.6295 - 0.6361
EUR/AUD 1.5728 1.5698 1.5847 1.5721 - 1.5886

AUD/YEN

The Australian Dollar (AUD) has continued to travel into thin air this week against the Japanese Yen (JPY) registering 83.00 up 1 cent from the weekly open. We have seen good flows into the Aussie Dollar with Risk markets improving this week,, equities and commodities both posted gains over 1.00% with the Aussie looking towards 84.00 the next target. Buyers of Yen should consider levels above 82.50 as this represents good buying from the low in mid-March of 80.60

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 82.99 82.00 84.25 81.03 - 83.03

AUD/CAD

The Canadian Dollar has continued its bearish tone from last week against the Australian Dollar (AUD) with it hovering around the 0.9800 area. We are weary of further Aussie weakness if we follow the June pattern of lower highs from 0.9920, representing a possible retest of 0.9660 could be the next move. Bank of Canada (BoC) will announce their cash rate at the end of the week with markets split on a hike to 1.50% from 1.25% based mainly on NAFTA risks with talks ongoing later this month. We will also get a look at the state of Canadian housing with the “new build” index publishing Friday.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9796 0.9750 0.9870 0.9662 - 0.9805

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Market commentary:

Markets saw last week out on a positive note as the June US Non-Farm Payrolls figure came in ahead of estimates at 213K with an upward revision of May data to 244K. The Unemployment Rate was modestly higher due to an increase in the participation rate, up from the 3.8% level previous, to 4%.

There was little negative market reaction on Friday to the news that the US introduced tariffs on $34bn of Chinese goods, or that China had immediately retaliated by imposing a similar 25% tariff on 545 US products - also worth a total of $34bn. Global equity markets along with risk-linked currencies actually pushed higher on the announcement, another example of sell the rumour buy the fact.

This week brings more political events with US President on a trip to Europe meeting with other European leaders at the NATO summit at towards the end of the week and then a meeting with Russian president Putin on Sunday….given past events over  Trump's discussions at last month’s G-7, markets are bracing for further volatility.

There was more positive news around Brexit over the weekend with UK PM May, gaining cabinet support for a pro-business plan which includes a free trade area for industrial and agricultural goods, based on a "common rule book" and a "combined customs territory" saw the UK pound gap higher on the open yesterday.

Also this week are several central bank speeches which may be helpful pointers for future direction, BOJ Governor Kuroda, ECB President Draghi and BOE Governor Carney all address an audience at some point this week. The Bank of Canada will hand down their rate decision on Thursday; and the ECB release their monetary policy minutes.

New Zealand and Australian markets opened the week on a more positive note with both currencies higher on a softer US dollar and taking advantage of a higher appetite for risk.

Australia

Also slow week for Aussie data this week, June business confidence is out later today which is expected to show a mild uptick…..While  US-China trade tensions remain the market focus over coming weeks, risks remain to the downside for the Australian dollar. However, Australia’s key commodity prices have been broadly resilient; especially LNG and thermal coal, suggesting AUD downside should be contained multi-month. The Australian Dollar (AUD) enjoyed a lift overnight as the US Dollar continues to maintain a softening stance across the broader markets as bulls take a breather, while the AUD is experiencing a bolstering from rising copper prices, which are lifting from recent bottoms as the Greenback recedes.

New Zealand

A quiet data week for the kiwi, with only the relatively minor Manufacturing Index data due on Friday which is not expected to have any market impact. As expected Finance Minister Robertson downplayed last week’s poor NZ business confidence survey , NZIR Quarterly data showed a sharp drop in confidence from -11 to -20, he noted that there is more to the economy than one survey can show...While this may be true, there is no doubt that the economy is softening off and with the potential trade war unsettling trading nations , of which New Zealand  is one….We look for further  weakness in the New Zealand dollar with any rallies providing selling opportunities.

United States

The first shot was fired in the US-China trade war,  without much kick-back from investors, this calm may be short lived ! For months, financial markets have been bracing for  US President Trump to follow through with threats of tariffs against China. So it came as little surprise when the US implemented duties on $US34 billion ($46 billion) in Chinese imports on Friday, as planned, and Beijing retaliated proportionately. The Trump administration is currently reviewing another round of tariffs on $US16 billion in Chinese goods. If the US stops at duties on $US50 billion in imports, and China does likewise, the hit to both countries' economies should remain relatively modest. If both countries then saw sense and financial markets bent but did not break a gradual wind back to normality may be possible. However, Trump said last week that he may expand tariffs to more than $US500 billion in Chinese goods, to basically cover all imports from the Asian nation into the US, that would be a huge escalation the impact of which  is very hard to quantify...a sharp decline in US financial markets and corresponding knock-on to world equity  markets could be one such effect allied to falling wealth and a hit to US growth of around 0.4% for the year. The risk is that businesses start to reactive in a negative way by postponing investment decisions and already there is some anecdotal evidence of some US operations putting capital expenditure plans on ice. The great danger is that in a more severe scenario, declining business investment with lower consumer spending would decrease demand, potentially prompting other countries to lash out in retaliation with more trade barriers , creating a vicious cycle of mounting protectionism and slowing growth. US CPI data on Thursday night, is likely to be the biggest release of the week given the soft US wage figures seen last Friday.

Europe

The train crash that is Brexit continues to roll along the rickety track….The more positive news UK PM Theresa May had gained cabinet support for a pro-business plan which includes a free trade area for industrial and agricultural goods, based on a "common rule book" and a "combined customs territory" saw the UK pound gap higher on Monday morning.
However this was tempered by news that UK Minister David Davis has resigned from his position as Brexit Secretary following the UK cabinet's agreement to PM May's new Brexit proposal, with hard-line Brexiteers including Davis angry over the agreement, claiming that the new proposals betray the original referendum result…Overnight came the shock news of Foreign Minister Boris Johnson's resignation, which has thrown May’s Brexit plans into disarray as she struggles to retain leadership of her party and prevent her government from imploding....look for continuing crises to dog the May government. 
The UK pound sterling heads into the new week with any bullish momentum now knocked away, and Sterling traders will be wary of upcoming challenges to Prime Minister May's leadership from hard-liners within the UK's Tory party.
UK GDP out tonight will be one to watch, considering expectations that the BOE will look to hike rates in August.

United Kingdom

European markets were higher to start the week, building on last week’s more positive services sector expansion for June as the industry drove a pick-up in the Eurozone’s growth momentum….On the data front, there were some minor releases, with the ones coming from the Union mostly positive, as Germany's Trade Balance posted a surplus of €20.3B, surpassing April's figure and market's expectations of €20.0B. The EU July Sentix Investors’ Confidence index surprised to the upside, printing 12.1 from the previous 9.3, also beating market's expectations of 8.2…..Later tonight the ZEW survey on German and EU's economic sentiment for July will be out and is expected to show a continued deterioration in business confidence….this may place the support level of EUR/USD 1.1720 under threat...Trade fears continue to overshadow the EUR/USD trading pair.

Japan

Yesterday BoJ Governor Kuroda gave a low key speech where he said that he expected the economy to continue to expand at a moderate pace pushing towards the BoJ’s inflation targets. Japan’s consumer inflation is currently moving between 0.5% and 1.0% and the BoJ intends to continue to control the yield curve for as long as needed until inflation hits their 2% target….The central bank will adjust its monetary policy as needed to maintain economic momentum.

Canada

With the tariff trigger being pulled on China/US trade last Friday, attention is on the serious trade tensions between the U.S and Canada. Canadian officials will be anxiously watching these developments as a full-blown trade war would be disastrous for the Canadian economy, which is heavily reliant on exports. If trade tensions continue to worsen, look for the Canadian economy to face challenges and the Canadian dollar to face strong headwinds. On Friday, Canada’s job growth surprised to the upside in June at 32k, though a softer pace of wage growth and higher unemployment rate took some gloss off the headline print, while the international trade deficit was wider than expected in May at -$2.8bn on stronger imports. Overall, the data will be seen as mixed, with BoC officials more focused on wage growth than headline unemployment and continuing solid import data provides a tailwind for investment...with GDP growth for Q2 tracking around 2.4% which is a low bar for the BoC to hike rates at it meeting on Wednesday.

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