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World trade concerns continue to spook markets with investors worried about sentiment; NZDUSD sits at a March 2016 low of 0.6573 ; NZDAUD has leveled off this week to consolidate around the 0.9050 area

Currencies
World trade concerns continue to spook markets with investors worried about sentiment; NZDUSD sits at a March 2016 low of 0.6573 ; NZDAUD has leveled off this week to consolidate around the 0.9050 area

By Neven Fisher*:

World trade concerns continue to spook markets with investors worried about sentiment. Equity markets and risk related products traded steeply lower through to the close of the week with the DOW at 25,313, S & P 2,833 and the Nasdaq at 7,841.87. The US President seems to be lapping up recent trade developments saying "they are good and easy to win." Every time a country (mainly China) retaliates he returns swinging with new tariffs.  There is much worse to come with Trump threatening another set of barriers which could in turn total the entire coverage off almost all US products from China. Trump end goal is to create more jobs in the US by increasing production. Decades of global trade negotiations and supply chains are at risk now. The Turkish Lira has dropped to record lows this year with it falling over 40%. Tensions between the US and Turkey are at boiling point with the detention of US pastor Andrew Brunson. The Turkish president told Turks to sell the US Dollar and buy the Lira. President Trump responded by authorising to double tariffs on steel and aluminium with aluminium now to be 20% and steel a whopping 50%. US Consumer Price Index rose in July at 0.2% with the underlying trend continuing to strengthen showing a steady increase in inflation pressures. In the 12 months to July CPI has increased 2.90%. The New Zealand Dollar was double teamed, not only has it pushed to fresh lows with rising trade tensions but was sold off heavily post the RBNZ meeting Thursday. Adrian Orr delivered a statement with a dovish tone saying the official cash rate move would not happen until well into mid 2020. The kiwi currently sits at the February 2016 low of 0.6570 with the trade weighted index at 71.35- pre cash rate announcement it was trading at 72.60. Trade talk will dominate markets this week again with data to release a little light over this week. Australian employment data and US building permits will be the highlights.

Major Announcements last week:

  • NZD sink to multi year low
  • Turkish Lira drops 45% in 2018 sending ripples through markets
  • Risk sentiment continues to dominate price action
  • RBNZ Official Cash rate unchanged at 1.75%
  • RBA Official Cash rate unchanged at 1.50%
  • UK Manufacturing prints up at 0.4% from 0.3% expected
  • Canadian Unemployment Rate drops to 5.8% from 5.9%

NZD/USD

Midday Friday in the previous commentary we were talking about a possible break below 0.6600 in the New Zealand Dollar (NZD), US Dollar (USD) pair. The kiwi broke below this mark and sits at a March 2016 low of 0.6573 Tuesday. A perfect storm scenario is still in play with the Turkish currency crisis boosting the safe haven US Dollar (USD) and the dovish RBNZ central bank creating further downward momentum for the NZD. Although markets await further economic data flows to gauge further direction, the US Dollar has slowed a tad but price action still looks weak. A lack of local economic data releasing this week, the kiwi will be at the mercy of US based economic publications such as Retail Sales and Building permits. Risk markets could re-enter currency markets at any point with geopolitical issues unresolved so expect further sentiment to play out.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6585 0.6566 0.6760 0.6559 - 0.6764

NZD/AUD (AUD/NZD)

The New Zealand Dollar (NZD), Australian Dollar (AUD) has leveled off this week to consolidate around the 0.9050 (1.1050) area. Reaching a low of 0.8950 (1.1170) the cross was not happy there and rebounded back above 0.9000 (1.1100) where markets saw true value. Profit taking on short positions in the market were closed out creating a spike higher disappointing investors they would see 0.8900 (1.1236) broken. With a fair chunk of data to come this week we could still see NZD decline further if Aussie data surprises markets with unemployment numbers and wage price index. We are trading close to 0.9000 (1.1100) but this physiological figure will tough to penetrate. Support below this level is at 0.8850- the October 2017 low.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9055 0.8950 0.9225 0.8948 - 0.9111
AUD / NZD 1.1035 1.0840 1.1175 1.0976 - 1.1176

NZD/GBP (GBP/NZD)

The New Zealand Dollar (NZD) and the British Pound take a breather after a huge week of volatility. The cross has consolidated around the 0.5160 (1.9380) area Tuesday as it awaits further direction. The Pound received a boost Friday after manufacturing numbers and prelim GDP printed above market expectations. A low of 0.5140 (1.9455) was reached before the cross recovered slightly higher. The NZD is still the weakest currency of 8 and may continue to slip lower against the Pound in the coming weeks. Multi year support is 0.5040 (1.9850) going back to Brexit voting day in June 2016. UK unemployment numbers print along with Retail Sales later in the week, we expect 0.5100 (1.9600) to be fragile.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5158 0.5110 0.5245 0.5137 - 0.5244
GBP / NZD 1.9387 1.9070 1.9580 1.9071 - 1.9468

 NZD/CAD

The New Zealand Dollar (NZD) slumped last week to 0.8595 against the Canadian Dollar (CAD) continuing its slide from the high of 15h March 2018 of 0.9510. Canadian unemployment figures surprised to the upside with 54,000 people entering the workforce up on the 17,000 that was expected. The unemployment figure dropped to 5.8% from 5.9% both figures boosted the CAD to pivotal support levels. Multi year support sits around 0.8580, if this week’s Canadian monthly CPI (Friday) was positive this level could be tested.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8644 0.8590 0.9000 0.8605 - 0.8827

NZD/EURO (EURO/NZD)

The New Zealand Dollar (NZD) has traded to a multi year low versus the Euro (EUR) in a week where we saw a large shift in EUR buying interest but mostly NZD weakness. Last week’s range was significant with the pair starting out at 0.5840 (1.7130) and travelling to 0.5720 (1.7485) post RBNZ announcement and as markets turned risk averse. As we look over the chart its clear we are hovering just shy of the long term trend line of October 2015. Further NZD weakness particularly if German economic sentiment prints well could bring about a break lower.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5773 0.5720 0.5840 0.5718 - 0.5829
EUR/NZD 1.7322 1.7120 1.7480 1.7155 - 1.7487

NZD/YEN

With the New Zealand Dollar (NZD) being the standout worst performer over the past week we have seen it plunge lower through 73.00 versus the Japanese Yen (JPY) to reach 72.80 Monday. With a lack of any real data to publish this week to impact the pair we could see it consolidate around the 72.80 mark. Risk off events are still brewing in the background with Trump defiant on trade so we could see further buying in the safe haven JPY if things heat up.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 72.90 72.35 76.80 72.37 - 75.26

AUD/USD

The Australian Dollar (AUD) continues to follow the bearish trend line from the top of 0.8120 from early Feb against the US Dollar (USD). Risk averse conditions have seen a fall in risk currencies such as the Aussie with the cross falling away sharply to 0.7270. Its lowest level since January 2017. The risk sensitive AUD has struggled to find buyers in a risk off environment, however in the last few hours it has consolidated at 0.7260 finding support. The US Dollar (USD) continues to gather pace after briefly touching 96.50 on the US Dollar index. A ream of data is due at the end of the week which could send the pair travelling lower if US Building Permits and Retail Sales prints down, Aussie employment data will also be key, but price direction could be at the compromise of risk perception.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7277 0.7250 0.7500 0.5680 - 0.5785

AUD/GBP (GBP/AUD) 

A game of two halves is the best way to describe last week’s price movement in the British Pound and Australian Dollar (AUD) with a large V highlighting the action. Closing the week just shy of where it started at 0.5700 (1.7550). The Pound has reversed all of its losses from early last week with impressive data publishing. Manufacturing data printing above expectation along with risk averse markets sending the Aussie “risk” currency lower. Key market indicators are on the calendar later this week with UK unemployment, Aussie wage index and unemployment data along with key UK retail sales. If markets revert back to risk off sentiment we could see the Aussie weaken off regardless of data.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5695 0.5620 0.5780 0.5680 - 0.5785
GBP / AUD 1.7559 1.7300 1.7800 1.7285 - 1.7606

AUD/EURO (EURO/AUD)

The Australian Dollar (AUD) has given back last week’s gains against the Euro (EUR), after starting the week at 0.6400 (1.5620) the EUR rallied to 0.6375 (1.5690) Last week reports showed that the EU bank exposure to Turkey rattled the EUR but it has bounced back. Key Aussie data will play out Wednesday with wage price Index and Thursday’s unemployment data, but we also have German economic sentiment to be wary of with numbers from July printing below market expectations and weakening the Euro. From where its trading now 0.6380 (1.5680) we see limited topside for the EUR for now with ongoing Turkish Lira concerns.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6373 0.6330 0.6420 0.6369 - 0.6418
EUR/AUD 1.5691 1.5580 1.5800 1.5581 - 1.5701

AUD/YEN

The Australian Dollar (AUD) slipped below pivotal support Monday of 80.50 extending its recent declines to 80.40. Japanese quarterly GDP printed Friday at 0.50% from 0.3% expected bringing Yen bulls back at the table. Starting the week at 82.25 this represents nearly 200 points of depreciation for the Aussie Dollar. This week’s Australian unemployment data releases and should show a steady figure around 5.40% with approximately 15,000 people added to the Australian labor force. Wage growth is the key release for the week with recent figures disappointing.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 80.48 80.00 82.70 80.00 - 82.80

AUD/CAD

The Australian Dollar (AUD) declined to its lowest level of 0.9535 against the Canadian Dollar since May 2016 trading. Long term support was seen at 0.9550 but the CAD outperforming we have seen this key level broken. Canadian unemployment figures surprised to the upside with 54,000 people entering the workforce up on the 17,000 expected. The unemployment figure dropped to 5.8% from 5.9% as the CAD continued to rally. Markets will be watching this week’s Australian employment numbers Thursday. If the pair continues to weaken off we could see a retest of the May 2016 low of 0.9350.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9540 0.9520 0.9700 0.9530 - 0.9707

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Market commentary:

World trade concerns continue to spook markets with investors worried about sentiment. Equity markets and risk related products traded steeply lower through to the close of the week with the DOW at 25,313, S & P 2,833 and the Nasdaq at 7,841.87. The US President seems to be lapping up recent trade developments saying "they are good and easy to win" Every time a country (mainly China) retaliates he returns swinging with new tariffs.  There is much worse to come with Trump threatening another set of barriers which could in turn total the entire coverage off almost all US products from China. Trump end goal is to create more jobs in the US by increasing production. Decades of global trade negotiations and supply chains are at risk now. The Turkish Lira has dropped to record lows this year with it falling over 40%. Tensions between the US and Turkey are at boiling point with the detention of US pastor Andrew Brunson. The Turkish president told Turks to sell the US Dollar and buy the Lira. President Trump responded by authorising to double tariffs on steel and aluminium with aluminium now to be 20% and steel a whopping 50%. US Consumer Price Index rose in July at 0.2% with the underlying trend continuing to strengthen showing a steady increase in inflation pressures. In the 12 months to July CPI has increased 2.90%. The New Zealand Dollar was double teamed, not only has it pushed to fresh lows with rising trade tensions but was sold off heavily post the RBNZ meeting Thursday. Adrian Orr delivered a statement with a dovish tone saying the official cash rate move would not happen until well into mid 2020. The kiwi currently sits at the February 2016 low of 0.6570 with the trade weighted index at 71.35- pre cash rate announcement it was trading at 72.60. Trade talk will dominate markets this week again with data to release a little light over this week. Australian employment data and US building permits will be the highlights.

Australia

The Australian Dollar has been trading sideways against the US Dollar for some months. On Friday it broke through support of 0.7320 and posted a low of 0.7273. The RBA kept rates unchanged last week as expected but raised eyebrows with the prospects of not making a single rise for the entire 2019 year. Late 2020 will be the next rise to rates. Last week’s decision means that the rate is heading unchanged into its third year - something extraordinary in Australian history. Australian dollar investors remain fairly nervous with the ongoing trade talks between China and the US. They clearly have a vested interest in developments and their ability to export product to China. The RBA don't seem to have a problem with a weaker Australian Dollar with currency strength hurting its ability to reach monetary goals. This week we have wage price index Wednesday along with unemployment rate Thursday. The unemployment rate is expected to remain unchanged at 5.4%

New Zealand

The New Zealand Dollar has been on the back foot since mid January this year. This is nothing new to most with it dropping from the high of 0.7435 versus the US Dollar. However last week on Thursday the fall which took it from a struggling 0.6725 to under 0.6500 was a half yearly style event with it depreciating over 1.3%. To sum things up - continuation of the bearish decline across the board for the kiwi is expected among markets and economists. Even if local data prints better than general market expectations foresee the news will be undermined by future rate hike expectations. Producer price index Friday is the only significant key data to tune into with most of this week’s movement coming in the form of "risk” trends.

United States

The mighty US Dollar has been the strongest performer over the last week against all its counterparts except the Japanese yen. The only reason the Japanese Yen has made gains is the buying interest which developed as markets turned risk averse. Heated trade developments between China and US and Friday's drop in the Turkish Lira dragged markets lower as US sanctions were doubled. Geopolitical issues drowned out most economic releases, but US inflation reached a new high. US inflation is 2.94% which brings more weight to the question - will the Federal Reserve hike rates twice year or once as predicted? The Turkish Lira dropped over 20% last week as the Turkey President defiant, called for Turks to buy the Lira and ditch the US Dollar and gold stocks instead of trying to compete with the US on trade Tariffs. Thursday markets will await Retail Sales figures which are expected to be in line with the previous month figures around 0.4%

Europe

The Euro has dropped in value to new 2018 lows. The currency has taken out support around 1.1530 against the greenback as fears take hold of a collapse in the Turkish Lira. The currency fell 20% last week with tensions between the US and Turkey escalated with the media story of the jailed American pastor. The ECB is worried given their exposures to the Turkish Lira. Broad downside risks remain this week with the situation threatening to worsen. Watch for further Trump trade rhetoric regarding trade disputes- this will certainly keep risk investors away from any market volatility. Germany's prelim GDP and yearly CPI print Friday.

United Kingdom

A bunch of UK related data published Friday and was surprisingly upbeat. Manufacturing Production printed at 0.4% from 0.3% expected and quarterly GDP came in at 0.4% with the economy picking up in the second quarter with both retail sales and construction assisting. Underlying growth remains modest by historical indications. The data did nothing to prevent further slides in the Pound as markets preferred the safety of the US Dollar with risks associated with the collapse of the Turkish Lira.  Brexit polls have shown that over 100 constituencies that originally voted to leave the UK have turned their support to "remain". This will have a huge impact on the parliamentary battle later in the year with most seats in GB now have a majority of voters who prefer to stay in the EU. UK (yearly) Consumer Price Index releases Wednesday and should give us further clues to growth with 2.5% expected.

Japan

Risk averse markets pushed punters into the Japanese Yen last week with the currency sliding from 111.20 to 110.20. Ongoing nervousness with trade tensions have seen the demand go back in the Yen. Equities and risk associated products are all weaker with the theme spreading into Monday’s sessions. The heated Turkey situation has increased nervous sentiment and could worsen.   The Bank of Japan is still grappling with prospects of discouraging their stimulus program with the magical 2% inflation target tough. A fairly thin calendar this week sees revised industrial production and key Trade Balance. We expect the Yen to breeze past 110.00 over the week with the current global risks to much for investors to bare.

Canada

Demand for the US Dollar doesn’t look like it's going to slow down anytime soon with the Canadian Dollar slumping to 1.3160 during early week trading. US Treasury Bills sit at over 2% making for good buying in US Dollar for long positions being the safe haven of choice. Friday’s Canadian employment numbers added an additional 54,000 jobs for July with the unemployment rate reducing to 5.8%. Speculation has increased that the RBC could hike to benchmark rate one last time for 2018. After knee jerk selling of the Canadian Dollar last week as Saudi Arabia froze all assets and investments with Canada the decision has had little follow on impact even as the Saudi Arabian foreign minister threatens more action. We only have monthly CPI to publish this week of note with most movement to be governed by trade talks and markets risk profile.

Daily exchange rates

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Source: CoinDesk

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