US Dollar traded higher across the board with the US Index jumping to 95.43; President Trump said Friday he was willing to slap additional tariffs on 267B worth of Chinese products; NZD is trading at fresh low of 0.6515 versus the USD

By Neven Fisher*:

Major Equity markets ended the week’s session weaker after The US employment report showed higher expected earnings and job growth with a surge in the average hourly earnings spiking 2.9% from a year ago. US Non farm Payroll came in at a healthy 201,000 higher than the expected 191,000 markets were expecting. US unemployment followed showing a slight increase to the unemployment que rising from 3.8% to 3.9%. The US Dollar traded higher across the board with the US Index jumping to 95.43. President Trump said Friday he was willing to slap additional tariffs on 267B worth of Chinese products entering the US at short notice, this is on top of the other 200B he is already considering. The current post NAFTA deal being negotiated between the Trump administration and Canadian officials is still on the go with differences in milk providing a barrier to an agreement being done. Currently US Milk products entering Canada are taxed at 270% in an attempt by Canada to protect their local industry. President Trump and Kudlow want the tariff removed to "give our farmers a break". Trade discussions with Trump and Japan have also struggled to be reached with President Trump saying "if we don't make a deal, Japan knows it’s a big problem". Japan’s prime Minister Shinzo has tried hard to form a good relationship but so far his efforts haven't helped derail any exemptions from the current metal tariffs bought in several months back. Locally the New Zealand Dollar continues to trade at fresh lows, down to 0.6515 against the greenback. This week we struggle to see any topside action with a good chance risk products could be sold off for safer style products and currencies such as the JPY if any trade discussions turn ugly. The NZ Trade Weighted Index (TWI) is down to 71.20 its lowest level since October 2016. This week’s economic docket sees the main prints being Australian Employment and Bank of England - Official Cash Rate Thursday along with US monthly CPI Friday.

Major Announcements last week:

  • Canada and US trade negotiations continue
  • US Non Farm Payroll surprises at 201k with unemployment steady at 3.9%
  • Canadian Cash Rate remains unchanged at 1.50%
  • Australian quarterly GDP prints at 0.9% based on market expectations of 0.7%
  • US Manufacturing data prints at 58.5 showing the market is expanding at a faster pace
  • UK monthly GDP prints at 0.3% from 0.2% expected
  • Brexit headlines of a potential agreement in November push the Pound higher

NZD/USD

The New Zealand Dollar (NZD) is trading at fresh low of 0.6515 versus the US Dollar (USD). Lower lows and lower highs has been the theme from the high of 0.7370 back in April this year. US strength supported by solid economic data has seen the US Dollar trade as one of the strongest currencies. US Non Farm Payroll numbers printed up at 201,000 compared to 191,000 expected pushing investors into the greenback. Trading around the January 2016 levels the kiwi’s next level of interest is 0.6350 of late September 2015. No-where do we see any economic print to suggest economists and experts are expecting the kiwi to dive in the 0.50’s. Most market makers expect further declines in the pair as the US economy improves with rate hikes and the like. We think somewhere in the 0.62’s could be a bottom in this current cycle.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6523 0.6510 0.6615 0.6513 - 0.6615

NZD/AUD (AUD/NZD)

The New Zealand Dollar (NZD), Australian Dollar (AUD) pair closed the week around the 0.9200 handle with the NZD fairing slightly favourable amid further trade war headlines. Consolidating around the 0.9170 mark Tuesday we look ahead to the main tier one event of note this week - Australian Employment Thursday to hopefully break the current range bound cycle. Buyers of Aussie should look at these levels as we compare the low of 0.9090 late last week. In the long term view we are still trading in the bearish channel from 12 April’s 0.9520 (1.0500) and should ease lower towards 0.9100 levels in the coming days.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9177 0.9090 0.9225 0.9075 - 0.9204
AUD / NZD 1.0887 1.0840 1.1000 1.0865 - 1.1019

NZD/GBP (GBP/NZD)

The British Pound (GBP) has pushed higher against the New Zealand Dollar (NZD) continuing last week’s surge through 0.5050 (1.9760) support. Positive Brexit headlines have helped the Pound (GBP) lift across the board after Michel Barnier said an agreement could be reached by November. The pair is trading just shy of the physiological level of 0.5000 (2.000) not seen since the day of the Brexit Referendum in June 2016. With the BoE to announce their official cash rate Thursday followed by their monetary policy we could indeed be starting down prices starting with a 4. With the second week of no significant NZ data to release we believe it won't take much for the kiwi to slide further.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5007 0.5000 0.5090 0.5002 - 0.5691
GBP / NZD 1.9972 1.9660 2.000 0.5002 - 0.5136

 NZD/CAD

After spiking to 0.8700 late last week on the lack of any trade agreement taking place between Canada and US officials, the Canadian Dollar (CAD), New Zealand Dollar (NZD) pair retraced back to the 0.8600 handle to close the week. Canadian unemployment figures printed at 6.0% from the 5.9% expected but risk averse conditions took hold. No economic data prints this week of note except second tier NZ manufacturing index numbers so direction we think could be with the bearish trend, with further downside momentum still to come. Huge support where is currently trades at 0.8560, so we will see if this holds.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8584 0.8560 0.8720 0.8580 - 0.8720

NZD/EURO (EURO/NZD)

The New Zealand Dollar (NZD) has started the week lower again against the Euro (EUR) in its 5th straight week on declines from the low of 0.5800 (1.7230) in mid August. Its currently trading at 0.5625 (1.7780), a September 2015 low. With current market conditions affecting risk currencies we see further weakness likely for the NZD with intl trade uncertainties still very much affecting the way markets behave. Trading at these extreme levels makes for tough times gauging price action with a trend reversal likely at some point but perhaps not in the short term. Long range support is seen at 0.5550 (1.8000)

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5630 0.5555 0.5680 0.5622 - 0.5691
EUR/NZD 1.7762 1.7600 1.8000 1.7572 - 1.7788

NZD/YEN

The New Zealand Dollar (NZD) looks soft ahead of further trade related headlines. The Japanese Yen (JPY) is acting as the safe haven investment currently while uncertainties remain in markets. The NZD has slide lower its third week from the high of 75.00 at 29th August to reach 72.25 today. It has however found a little support around this area for now but we suspect the next wave of market pessimism may grind the kiwi lower to retest 71.00 levels. We have very little NZ and Japanese fundamental economic news over the week which increases the chances direction will be mainly limited to offshore trade related developments.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 72.64 72.20 73.60 72.26 - 73.67

AUD/USD

After a choppy week in currency markets, the Australian Dollar (AUD) closed down 70 points from 0.7180 against the US Dollar (USD). Midday Tuesday we are around 0.7100 levels with the Aussie being squeezed lower from the weekly open. US Non Farm payroll figures Friday were higher than markets were expecting at 201,000 bringing back buyers of USD to currency markets, the Aussie the biggest loser on the day. This week we have a bunch of economic data to publish including US Core quarterly CPI, Aussie employment followed by US Retail Sales. Markets are largely factoring in a week of positive US releases with a lot more risk averse sentiment to come based on Trump’s trade discussions with Canada and China. With markets hanging off further headlines direction is damn hard to pick. Life will get interesting for the Aussie if it retests 0.7000 levels not seen in the pair since February 2016

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7100 0.7000 0.7320 0.7099 - 0.7235

AUD/GBP (GBP/AUD) 

The British Pound (GBP) has surged during the overnight sessions against the Australian Dollar (AUD) after the chief EU Brexit negotiator said a Brexit deal realistically could be reached by November. At least the first stage of the Brexit treaty should be agreed within six to eight weeks. The pair slumped from 0.5503 (1.8170) to 0.5470 (1.8280) after the news  putting further pressure on the Australian Dollar (AUD) its fifth straight week of declines. In a heavy week of economic releases, the main events will be the BoE cash rate announcement with no change to the 0.75% expected and Australian Employment data, both Thursday. We are expecting further weakness in the Aussie with the April low of 0.5405 (1.8500) close to entering play.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5450 0.5400 0.5490 0.5451 - 0.5624
GBP / AUD 1.8350 1.8220 1.8500 1.7781 - 1.8346

AUD/EURO (EURO/AUD)

The Australian Dollar (AUD) still looks very vulnerable to further downside against the Euro (EUR). Monday has seen the continuation of the huge bearish trend from June 2018 price of 0.6550 (1.5270) surge lower through key - monumental prior support of 0.6150 (1.6250) - August 2015 levels to register 0.6135 (1.6300) Tuesday. The Euro received a friendly boost during the Monday overnight sessions after news broke of a possible November (stage 1) brexit agreement. Adding to Aussie woes is the ongoing trade war saga which threatens to go for months as President Trump negotiates agreements with Canada, Japan and China. As long as markets remain spooked by taking on risk currencies such as the Australian Dollar it will continue to ease lower- it’s that simple.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6127 0.6060 06200 0.6128 - 0.6238
EUR/AUD 1.6320 1.6150 1.6500 1.6042 - 1.6319

AUD/YEN

With the Australian Dollar (AUD) the weakest currency over the past few days it’s no surprise its lower against the safe haven Japanese Yen (JPY) After slumping to 78.60 Monday it has made a slight recovery back to 79.00. Markets remain nervous of further headline trade war related news with China which has the ability to send the Aussie much lower in more ways than one. The safe haven Yen buy and the trade related relationships Australia have with China look shaky. The pair is trading at the November 2016 low and could make a lunge for 76.00 if things don’t look up.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 79.06 76.80 81.50 78.74 - 80.56

AUD/CAD

The Australian Dollar (AUD) has lost further ground against the Canadian Dollar (CAD) closing the week out around 0.9380. Australian Trade Balance printed higher than markets predicted at 1.55B with Canadian [unemployment coming in lower at 6.0%. A rally in the Aussie never eventuated with a wider picture risk off sentiment gripping markets after any trade agreement with the US was not forthcoming and delayed until this week. Australian Unemployment prints Friday the release to watch with a stable 5.3% expected. Long term the pair trades just off the low of May 2016 - 0.9320, with further risk sentiment driving markets this week we could see this level broken.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9343 0.9320 0.9550 0.9350 - 0.9516

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Market commentary:

Major Equity markets ended the week’s session weaker after The US employment report showed higher expected earnings and job growth with a surge in the average hourly earnings spiking 2.9% from a year ago. US Non farm Payroll came in at a healthy 201,000 higher than the expected 191,000 markets were expecting. US unemployment followed showing a slight increase to the unemployment que rising from 3.8% to 3.9%. The US Dollar traded higher across the board with the US Index jumping to 95.43. President Trump said Friday he was willing to slap additional tariffs on 267B worth of Chinese products entering the US at short notice, this is on top of the other 200B he is already considering. The current post NAFTA deal being negotiated between the Trump administration and Canadian officials is still on the go with differences in milk providing a barrier to an agreement being done. Currently US Milk products entering Canada are taxed at 270% in an attempt by Canada to protect their local industry. President Trump and Kudlow want the tariff removed to "give our farmers a break". Trade discussions with Trump and Japan have also struggled to be reached with President Trump saying "if we don't make a deal, Japan knows it’s a big problem". Japan’s prime Minister Shinzo has tried hard to form a good relationship but so far his efforts haven't helped derail any exemptions from the current metal tariffs bought in several months back. Locally the New Zealand Dollar continues to trade at fresh lows, down to 0.6515 against the greenback. This week we struggle to see any topside action with a good chance risk products could be sold off for safer style products and currencies such as the JPY if any trade discussions turn ugly. The NZ Trade Weighted Index (TWI) is down to 71.20 its lowest level since October 2016. This week’s economic docket sees the main prints being Australian Employment and Bank of England - Official Cash Rate Thursday along with US monthly CPI Friday.

Australia

The Australian Dollar has underperformed of late making it the weakest currency of the G10. Against the US Dollar it has hit a low of 0.7095, a 14 February 2016 level. Contributing to its overall weakness was the jump in USD against the Chinese Yuan as President Trump is preparing to add another 267B worth of tariffs to what looks to be the entire exports into the US. This comes in addition to the other 200B already scheduled. Clearly the further China succumbs to the US demands the weaker the Yuan will go and the weaker the Australian Dollar based on its trade ties with China and the manufacturing sector. The Australian Dollar got a double whammy of bad news late Friday also when the US Non Farm Payroll figure printed better than the expected 191k to 201k boosting the USD further. Late this week we have Australian Unemployment figures with the Unemployment rate expected to remain at 5.30% from August.

New Zealand

The New Zealand Dollar is being driven lower by offshore events and the stubbornness of investors to purchase risk products such as the kiwi. The NZD has been the weakest currency since Wednesday along with the Australian Dollar amid concerns President Trump could impose an additional 267B worth of tariffs on Chinese products. US Non Farm Payroll numbers printed better than markets expectations Friday coming in at 211k opposed to 191k dragging the New Zealand Dollar lower as the US Dollar was Bid. In a tax working group chaired by Sir Michael Cullen the National Party has been proved right that a Capital Gains Tax is not the best way forward to solving housing affordability. The report is not due out until February. This week the only economic release is Business NZ Manufacturing Index - A measure of business conditions with surveyed Manufacturers.

United States

President Donald Trump is at it again with ongoing trade discussions now with Canada, Japan and China still unresolved. Some market commentators are suggesting the China leg of talks could span into years. A fresh batch of 267 Billion could be added at short notice to the other 200 Billion bucket of trade tariffs already planned and the 50B already facing 25% levies. This would bring the tally to basically ALL trade imports out of China into the US at just over 500 Billion. The US labour Department reported Non-Farm Payroll increased by 201,000 jobs in August 10,000 more than markets were predicting. Unemployment remains consistent coming in at the expected 3.9% with markets predicted to see this figure lower in October. Markets also focused on the increase in average hourly earnings which has spiked 2.9% from the same time last year, the biggest increase in wages growth since 2009. This will put pressure on Powell and the Federal Reserve panel to increase the cash price at the next cash rate announcement on September 27. This week’s monthly CPI figures and Retail Sales will be crucial and should represent the ongoing surging American economy.

Europe

The Euro received support from the Brexit headlines during the overnight sessions Monday after the chief EU negotiator gave hope that the first stage of Brexit could be finalised before November. The Euro traded higher on relief sentiment to up over 1.16 against the Dollar despite poor local data and weaker equity markets. The ECB will deliver its Cash Rate decision on Thursday with Draghi due to deliver his monetary policy press conference just after. With recent slide in inflation we would expect a more dovish tone from Draghi. He is not expected to waiver from recent June QE developments. In October they will reduce the monthly buying of Government Bonds from 30 Billion to 15 Billion, this will run until the end of the year with the ECB planning to not buy any further Bonds in 2019. This will bring the entre Bond buying QE program which started in 2015 to a close. A rate hike is due around mid to late 2019, at least this is what markets are expecting, should comments be made to the contrary this will put pressure on the Euro. I find this interesting given poor recent CPI and growth numbers not to mention the high unemployment rate.

United Kingdom

We should see a lot of interest this week in the British Pound with a busy week of economic scheduled releases. Overnight EU’s chief Brexit negotiator Barnier said the possibility of reaching a deal by November was realistic - this sent the British Pound from 1.2950 to 1.3030 against the greenback and half a percent higher against the Euro. The main event will be the Bank of England (BoE) cash rate announcement. The BoE are not expected to raise rates from the 0.75% on August 2nd confident the vote will be a 0-9 in favour. The BoE signalled they were in no hurry to raise rates again in such a short time after pushing the rate above the financial crisis lows - a nine year shift, reiterating that Brexit uncertainties remain on the horizon.  Manufacturing production monthly results were down at -0.2% from the expected 0.2% with manufacturers a little worried with the current slowdown, its lowest expansion rate since July 2016 post the Brexit referendum. The unemployment rate is announced tonight and is expected to remain at 4.0%.

Japan

The Japanese Yen rallied to 110.30 Friday after the President Trump eyed Japan as his next target in his global trade negotiations regime. US Non Farm Payroll figures published better than expected at 201,000 with annual earnings jumping 0.4% from 0.2% expectations putting the Yen was put on the back foot as Dollar buyers pushed the USD higher. With risk sentiment thickening the air the market awaits fresh market news as the Japanese Yen trades around 111.00 handle in what promises to be an action packed trade related week. Investors are bracing for trade related news as volumes seem a lower than normal. In Japanese related economic news the economy watchers index, a survey of workers who rate the level of current economic conditions gave the thumbs up on the state of the Japanese economy with statistics showing a rise in overall optimism with the indicator showing 48.7 after markets expected 47.2. Later in the week we have manufacturing data.

Canada

Canadian Unemployment data printed Friday slightly down on the expected 5.9% to 6.0% dragging the Canadian Dollar lower. US Unemployment data was also poorer than markets hoped for printing at 3.9%. It was the non Farm payroll which highlighted a booming US economy with 201,000 people entering the workforce up on the 191,000 markets were expecting. Also of note was a bumper wage growth report which has surged 2.9% y/y. Rate expectations will remain unchanged after the worse than expected employment data, pricing a small tightening or the Bank of Canada’s October rate meeting. A light week ahead is in store on the Canadian economic docket with only Housing statistics Friday. President Trump took a tough line with Canada overnight when he said - if the US doesn’t come to an agreement with Canada, it won’t harm the US economy. “It won’t be fine for Canada” the president said.

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