President Trump has delivered remarks to impose 10% tariffs on 200 Billion worth of Chinese imported products; NZD has started the week well gaining against the USD to 0.6600; NZDAUD rangebound for the fourth week

President Trump has delivered remarks to impose 10% tariffs on 200 Billion worth of Chinese imported products; NZD has started the week well gaining against the USD to 0.6600; NZDAUD rangebound for the fourth week

By Neven Fisher*:

In breaking news- President Trump has delivered remarks to impose 10% tariffs on 200 Billion worth of Chinese imported products, these duties will rise to 25% at the end of the year. Trump said the rise to 25% would come into play on the 19th of January 2019 if China retaliates. He would also instigate “phase three” which would be to pursue tariffs on approx 267 Billion of additional products. Markets have turned risk averse on the news with the New Zealand Dollar and Australian Dollar both sharply trading lower.
 
Investors who started the week long US Dollar have needed to reconsider their risk exposure. Over the week the big dollar appreciated then lost momentum when US inflation data and producer prices both fall short of expectations. Retail Sales also came in poor surprising markets with a reading of 0.1 versus the 0.5% expected. Data shows this was the worse reading since March this year citing lower household spending was the culprit. Equity markets have continued to surge higher over the week but retraced off highs midweek when risk sentiment started to waiver. The S & P is trading at 2904 just shy of its all time high 2908, a scary level when we look back at the speed of the moves to where it trades now. Crude oil backed off lower from its weekly high of 71.25 to trade around the 68.00 area after experiencing massive interest stemming from hurricane buying as Hurricane Florence barrelled down on Carolina. President Trump's economic trade agenda is due to ramp up this week after implementation of tariffs totalling 200 Billion on Chinese products after the President gave word to his officials to continue forward with his China tariff plan. This week things are due to escalate further with US and China coming up with new ways of retaliating. We have seen threats from both sides recently with markets hoping something may be sorted this week after Steve Mnuchin and a Chinese top official have arranged to meet in Washington. If President Trump announces fresh tariff plans early this week this could derail the meeting sending negotiations back to first base. The New Zealand Dollar closed the week in slightly positive territory across the board but looks to be under a fair amount of pressure. Fridays Manufacturing data showed a sluggish sector for the third consecutive month. Trade concerns could weigh on the kiwi over the week along with other risk currencies such as the Australian Dollar, both seem stuck in long term bearish cycles with the kiwi trading just off its low of 0.6550 against the US Dollar at January 2016 levels. We have another quiet week of economic news with quarterly GDP to print.

Major Announcements last week:

  • Australian Employment improves a whopping 44,000 new people employed.
  • Bank of England keep rate at 0.75%
  • European Central Bank keep refinacing rate at record lows.
  • US monthly CPI numbers print down on expectation putting pressure on the Dollar.
  • Markets turn risk averse as trade war threats rise.

NZD/USD

The New Zealand Dollar (NZD) has started the week well gaining against the US Dollar (USD) to 0.6600. The week holds little in store in terms of economic headlines only Crude Oil Inventories and NZD second quarter GDP to get excited about. The highly awaited Trump tariff announcement became a reality Tuesday mid morning when he announced an additional 200 Billion worth of tariffs on Chinese products and he would raise this with another 267 Billion early in 2019 if China retaliated, also the initial 10% would become 25% to make matters worse for the Chinese. The pair sold off from its high of 0.6600 dropping down to 0.6560 as risk sentiment took over. If risk markets continue into next week topside will be limited with the possibility we could see 0.6500 retested.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6575 0.6540 0.6600 0.6502 - 0.6596

NZD/AUD (AUD/NZD)

A range bound theme is still in play with the Australian Dollar (AUD) , New Zealand Dollar (NZD) cross entering the fourth week of price action between 0.9115 (1.0970) and 0.9215 (1.0850). The kiwi is proving to be incredibly resilient with recent data really showing a lower valued NZD but this never eventuates. We doubt second quarter NZ GDP will bump the 0cross from its happy zone, also RBA minutes of the August monetary meeting shouldn’t upset the apple cart either. We should see more of the same for a while yet.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9170 0.9115 0.9215 0.9096 - 0.9197
AUD / NZD 1.0895 1.0860 1.0980 1.0873 - 1.0994

NZD/GBP (GBP/NZD)

Further weakness in the New Zealand Dollar (NZD) has seen it break lower through 0.5000 (2.000) against the British Pound (GBP) confirming we are fast approaching pre Brexit levels set during the referendum in June 2016. If risk off markets develop we could see the pair lower as investors sell the kiwi. Wednesdays UK CPI is set to publish around 2.5% with NZ second quarter GDP Thursday which markets are predicting to release at 0.8% much higher than the previous three quarters.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5000 0.4995 0.5040 0.4992 - 0.5034
GBP / NZD 2.000 1.9850 2.0020 1.9863 - 2.0033

 NZD/CAD

The New Zealand Dollar (NZD) broke free from the bearish channel Monday travelling to 0.8580 confirming a positive tone versus the Canadian Dollar (CAD) a continuation of last week’s momentum from 0.8490. NZ quarterly GDP will be one of the weekly highlights along with Canadian Retail Sales Friday. Crude Oil seems to have stabalised around the 68.50 area after last week’s massive moves, this will assist the NZD bullish tone, the kiwi is not out of the woods just yet, we really need to see 0.8700 to confirm any solid move off long term current lows.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8579 0.8500 0.8610 0.8497 - 0.8598

NZD/EURO (EURO/NZD)

The New Zealand Dollar (NZD) continues to trade at extreme levels against the Euro (EUR) creating lower highs and lower lows in the long-term trend which has held since February 2017. Trading at 0.5630 (1.7760) Tuesday the Euro now eyes 0.5555 (1.8000) the August 2015 low. ECB’s Draghi speaks twice this week in Paris and in Berlin on matters relating to monetary policy, locally second quarter NZ GDP is the main even on the docket with markets expecting a significant rise to first quarter results. Sellers of Euro should be extremely happy with more downside expected.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5629 0.5610 0.5650 0.5610 - 0.5659
EUR/NZD 1.7765 1.7710 1.7820 1.7670 - 1.7824

NZD/YEN

The New Zealand Dollar (NZD) slipped back from a weekly high of 73.75 Friday to close the week around 73.30 against the Japanese Yen (JPY). With a Japanese Holiday Monday the kiwi has regained losses to push through to 73.80 amid global trade tensions. Markets await the Bank of Japan cash rate announcement with no change to current policy expected. Risk associated moves should be the main driver this week with a lack of meaningful data to publish, if markets get hold of the Yen we could see it retest 73.00

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 73.49 72.90 73.80 72.43 - 73.80

AUD/USD

The Australian Dollar (AUD) found strength early in the week back trading above 0.7200 against the US Dollar (USD) but soon lost ground. President Trump has announced further tariffs of 200 Billion at 10% on Chinese imported products spooking markets once again dampening risk moods, the Aussie dropping to 0.7150 on the news. RBA Minutes of the August meeting prints later today along with several US second tier local data later in the week. Trade headlines will certainly continue to drive price action over the rest of the week with China to retaliate with some degree over the next few days you would expect. Topside will be limited with a possible retest of the low of 0.7080 by weeks end possible.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7169 0.7140 0.7230 0.7086 - 0.7229

AUD/GBP (GBP/AUD) 

The British Pound (GBP) trucks on and looks unstoppable against the declining Australian Dollar (AUD) as it looks to retest 0.5445 (1.8370). Key movers and announcements this week will be the RBA August Minutes along with UK yearly CPI figures and Retail Sales. Brexit is still throwing up daily headlines - the latest is a possibility that a no deal Brexit is at least possible unless Theresa May is prepared to relent to the demands of Brussels. The Irish border issue one of the major concerns still to be resolved. Massive support around 0.5400 (1.8500) going back to June 2016 is not far away, if any thread of a deal can be agreed we would see the pair travel well through these levels to possibly 0.5130 (1.9500) but this could be months away.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5452 0.5405 0.5520 0.5435 - 0.5521
GBP / AUD 1.8342 1.8110 1.8500 1.8120 - 1.8400

AUD/EURO (EURO/AUD)

On way traffic continues to be the theme with the Australian Dollar (AUD) Euro (EUR) pair, trading just off last week’s low of 0.6115 (1.6350) at 0.6150 (1.6270) Tuesday this is a continuation of the bearish long term move from 0.6560 (1.5300) of June this year. Today’s RBA August monetary minutes will be key to gauge further direction with Eurozone manufacturing numbers to print later in the week. With a mixed bag of manufacturing results out of Germany and Spain late August these results will be pivotal.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6137 0.6120 0.6160 0.6115 - 0.6194
EUR/AUD 1.6295 1.6230 1.6340 1.6145 - 1.6353

AUD/YEN

The Australian Dollar has started the week in a positive tone reaching 80.60 against the Japanese Yen (JPY) pushing up from the weekly close of 80.15. The Japanese holiday to observe “respect for the aged day” made for thin trading conditions. The economic docket this week for the pair is light with markets eying today’s RBA August Minutes and later in the week Japan’s Cash Rate announcement which is expected to remain unchanged and show no surprises. With trade tensions the main currency concerns this week we may see a weaker Aussie Dollar trade back under 80.00

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 80.14 79.70 80.70 78.94 - 80.78

AUD/CAD

The Australian Dollar (AUD) closed the week at 0.9320 against the Canadian Dollar (CAD) pushing aside any bearish sentiment the pair would retest last week low of 0.9270 travelling to 0.9360 amid thin Monday trading sessions. Today’s RBA monetary minutes will be the key event of the week with the Canadian Retail Sales printing later in the week. Equities have all gone lower suggesting markets are preparing for negative headlines at some point with the Trump led trade negotiations. Topside momentum could be limited for now with a retest of 0.9315 on the cards.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9353 0.9315 0.9400 0.9272 - 0.9398

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Market commentary:

In breaking news- President Trump has delivered remarks to impose 10% tariffs on 200 Billion worth of Chinese imported products, these duties will rise to 25% at the end of the year. Trump said the rise to 25% would come into play on the 19th of January 2019 if China retaliates. He would also instigate “phase three” which would be to pursue tariffs on approx 267 Billion of additional products. Markets have turned risk averse on the news with the New Zealand Dollar and Australian Dollar both sharply trading lower.
 
Investors who started the week long US Dollar have needed to reconsider their risk exposure. Over the week the big dollar appreciated then lost momentum when US inflation data and producer prices both fall short of expectations. Retail Sales also came in poor surprising markets with a reading of 0.1 versus the 0.5% expected. Data shows this was the worse reading since March this year citing lower household spending was the culprit. Equity markets have continued to surge higher over the week but retraced off highs midweek when risk sentiment started to waiver. The S & P is trading at 2904 just shy of its all time high 2908, a scary level when we look back at the speed of the moves to where it trades now. Crude oil backed off lower from its weekly high of 71.25 to trade around the 68.00 area after experiencing massive interest stemming from hurricane buying as Hurricane Florence barrelled down on Carolina. President Trump's economic trade agenda is due to ramp up this week after implementation of tariffs totalling 200 Billion on Chinese products after the President gave word to his officials to continue forward with his China tariff plan. This week things are due to escalate further with US and China coming up with new ways of retaliating. We have seen threats from both sides recently with markets hoping something may be sorted this week after Steve Mnuchin and a Chinese top official have arranged to meet in Washington. If President Trump announces fresh tariff plans early this week this could derail the meeting sending negotiations back to first base. The New Zealand Dollar closed the week in slightly positive territory across the board but looks to be under a fair amount of pressure. Fridays Manufacturing data showed a sluggish sector for the third consecutive month. Trade concerns could weigh on the kiwi over the week along with other risk currencies such as the Australian Dollar, both seem stuck in long term bearish cycles with the kiwi trading just off its low of 0.6550 against the US Dollar at January 2016 levels. We have another quiet week of economic news with quarterly GDP to print.

Australia

The Australian Dollar rose against most of its peers last week in a resilient show of strength it was back above 0.7200 against the US Dollar at one stage. Key employment data released showing a stable unemployment rate of 5.3% with the change in the number of new employed people jumping to 44,000 from 16,500 markets were expecting. The Aussie Dollar started the year at 0.7900 levels and over the months has fallen to historic lows where it is today struggling to stay above 0.7000 against the US Dollar. The pair briefly dropped in to the 0.70's last week but wasn't quite ready to pass below the physiological level of 0.7000. To put this into perspective we have seen 9 positive weeks of the 34 on offer in 2018. To blame - a softening housing market and geopolitical uncertainty offshore with Trump and China potentially affecting Australian Trade into China and also uncertainty associated with the Australian Federal Election due by May 2019. We can expect more of the same - short bursts of bullishness followed by retracements lower creating fresh lows. Australian data will be light this week with tier one releases. The RBA minutes and consumer confidence will be the key focus though the minutes will more than likely not highlight anything new shifting prices far from current levels.

New Zealand

The New Zealand Dollar outperformed its rival currencies during the late part of last week with only Aussie a tad more supported. The kiwi opened lower Monday after currency markets turned to risk averse on reports President Trump has instructed his people to proceed with tariffs of 200 Billion worth of tariffs on Chinese products. The risks this week of an all out trade war are heightened over previous weeks with Trump insisting Americans get a fair deal and China not prepared to back down either. A Chinese official was quoted as saying - the country would not negotiate “with a gun pointed to its head”. Officials in Washington are due to meet later in the week to work towards a resolution. Unfortunately if things don't go to plan based on the "Trump" factor we could see further risk averse sentiment affect the NZD to the downside. Another quiet week of local data sees Current Account Wednesday and quarterly GDP, expected to print slightly up on last month’s 0.5%.

United States

The US economy has a lot on the line this week with Trump and his officials continuing trade talks with China. Very little economic data will release over the week in the US with only Building Approvals and Crude Oil inventories to focus on. This will leave plenty of scope for trade related headlines to drive markets and currencies at will. Trump and his administration want to move forward with its plan on an additional US 200 Billion of Chinese products. New talks are due to resume on the 20th September (this Thursday) with Chinese officials and Treasury Secretary Steven Mnuchin. China have a few days to reject the meeting if the 200 Billion is imposed and sources are suggesting they may retaliate by imposing limits on the sale of parts and supplies needed by US businesses. The direct result will affect the US distribution of products and commodities. Wow - things could get ugly quick. American equity and commodity markets are all trading flat with the US Dollar index turning negative on the day down to 94.90 this should weaken as the week rolls on.

Europe

Draghi seemed more upbeat during his announcement of the ECB Cash Rate decision on Thursday, leaving the benchmark interest rate unchanged and announcing plans to end its bond buying program at the end of this year, this will bring the entire bond buying QE program which started in 2015 to a close. Draghi said he would keep rates at record lows until at least until the end of next summer. The Central bank also confirmed it would halve the bond purchases to 15 Billion Euro per month starting from October. The Euro rallied to back above 1.1700 before falling victim to risk sentiment retracing the move higher to close at 1.1630 versus the US Dollar. Draghi speaks again this Tuesday in Paris with manufacturing data to print the two main events on the docket  this week for the region.

United Kingdom

The British Pound was the standout performer last week with a slew of economic related releases pushing the currency 150 points higher off the open of 1.2920. Brexit related news keeps occupying British newspapers with Theresa May receiving leadership threats from Boris Johnson who said "if Brexit negotiations continue on this path they will end, I am afraid, in a spectacular political car crash". The Bank of England (BoE) voted unanimously for no change to their official cash rate leaving it at 0.75%. The BoE highlighted concerns with Brexit and said there had been no further domestic developments since the 2nd August hike to be considered. The Average earnings indicator showed an unexpected pickup with the strongest rate of growth over the past three years at 2.6%. This makes interesting reading when we look at the number of UK vacancies rising to over 800,000 in the three months to August - the highest level since records began. Yearly CPI figures and monthly UK Retail sales are the main events on the economic docket this week.

Japan

Japanese Holiday observed Monday with "Respect for the aged day" - the over 70's Japanese population accounts for 20% of the total population. The US Dollar made up 1 cent in gains over the Japanese Yen last week but US Dollar rallies appear to be well capped at 114.50. For now tension has eased in the markets but we fear this is the quiet before the storm with a big week in store for trade negotiations. For now the Japanese Yen looks capped to the upside with a potential unwinding of equities and risk products expected again perhaps later this week cause some further carnage. Japanese punters will be keeping a close eye on the Bank of Japan BoJ cash rate decision this week, however don’t expect any excitement with the Bank of Japan likely to continue its loose monetary policy with inflation remaining at some distance from the expected target.

Canada

The Loonie has advanced over 1% against the US Dollar last week on the back of risk sentiment and a Crude oil price spike. Crude oil rallied to over 70.00 per barrel, the largest move in over three weeks sending the CAD back through 1.3000 versus the greenback. The rally has come about after speculation hurricane Florence would create an oil shortage which in turn pushed the price higher. This week’s inflation and Retail Sales will be crucial for the Bank of Canada's thinking on raising rates in October 25th. With the US raising their cash rates again in 2018 this is putting increased pressure on the Canadians. NAFTA headlines could be announced with negotiations continuing this week, with the aim of adding Canada to the US/Mexico agreement.

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