Starting the week around 0.6600 NZDUSD sank to 0.6440 a 2.5 year low; NZDAUD pair is still bouncing around within recent ranges but closer to the bottom of our support area of 0.9050; US Dollar has been the strongest performer over the past 10 days

By Neven Fisher*:

Brett Kavanaugh has been sworn in to the US Supreme Court after weeks of unsettling controversy. After the FBI's investigation into claims of sexual assault the Senate have backed his nomination by a vote of 50 to 48. This clearly falls into the hands of President Trump ahead of important midterm elections in November. Hundreds of people protested outside Capitol Hill in Washington against his nomination. The appointment to the US Supreme Court is for life and strengthens the current conservative government's control of the nine judge panel who have final say of law. The president tweeted - I applaud and congratulate the US Senate for confirming our great Nominee to the United States supreme court. Trump also caused a stir when he said he was 100% certain the women accusing Kavanaugh of sexual assault had named the wrong person - how in the hell would he know? Mid-term US elections will be interesting with potentially many women voters to vote "democratic" in a continued show of outrage. Since the mid 60's women have out voted men in every election, republicans should be concerned about this. US and global equities have traded off their highs from Thursday in what promised to be another week of record setting never eventuated. Markets turned ugly with the DOW falling back 200 points to close the week 1% down. The S&P and the NASDAQ also gave back gains closing down over 1% and 3.5%. US Non-Farm Payroll printed down for September at 134k based on 185k expected but an upwardly revised August figure made up for the shortfall. US Unemployment fall to the lowest level since 1969 at 3.7%. The tightening job market is contributing to push up interest rates higher - significantly the 10 year US Treasury note rose to 3.23% and hit the highest level since 2011. Notably the 2 year yield advanced to 2.89 amid strong US data. The tipping point for investors to sell equity products and buy bonds must be fast approaching and has the impact to drop current equity prices significantly for some time. The NZ Dollar continues to trade lower, the weakest currency of the G10 over the past week. At some point we should see a correction to the upside when traders and Investors bail on short positions, for the meantime this week’s quiet local economic data is light and shouldn't offer up any changes to recent price activity. US holiday (Columbus Day) and Japanese holiday (Health Sports Day) should make for light trading conditions through to Wednesday.

Major Announcements last week:

  • RBA kept rates unchanged at 1.50%
  • US ISM Manufacturing prints higher than expected at 61.6 vs 58.0
  • Non Farm Payroll released lower at 134k in Sep but August figures were revised higher.
  • US Employment drops to 3.7% - lowest since 1969 
  • Canadian unemploument unchanged at 5.9%
  • US and Japanese Holiday's Monday - slow start to the week.

NZD/USD

The New Zealand Dollar (NZD) is coming off a week which saw it reach fresh cycle lows against the surging US Dollar (USD). Starting the week around 0.6600 it sank to 0.6440 a 2.5 year low. Recently the NZD has been driven mainly off broader global macro themes soaking up additional downside pressure accounting for relative underperformance. Local economic data has been unimpressive with the NZD let down by softer global dairy auction results and Institute of Economic Research Business Confidence results which highlighted distressing weaker earnings. Looking ahead we have US monthly CPI figures the main data of the week. Sellers of US Dollars should be selling on spikes lower, certainly under 0.6500 reads attractive prices.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6445 0.6420 0.6500 0.6425 - 0.6611

NZD/AUD (AUD/NZD)

The New Zealand Dollar (NZD), Australian Dollar (AUD) pair is still bouncing around within recent ranges but closer to the bottom of our support area of 0.9050 (1.1050) Tuesday. Both currencies have reported weaker than expected economic data recently after the RBA left rates unchanged at 1.5% last week. 20 years ago we rarely saw the currency go higher than about 0.8200 (1.2195) with the average around the 0.8100 (1.2345) area. The current 10 year average back to 2008 is 0.8620 (1.1600) with the 5 year average back to 2013 of 0.9280 (1.0775). This puts perspective on how the New Zealand Dollar has crept up over the years based on economic changes. Perhaps over the next 5 years we could see an average higher than 0.9280 (1.0775)? The pair seem solid around the 0.9100 (1.0990)-0.9200 (1.0870) zone. NAB Aussie Business confidence just released slightly better than expected strengthening the cross around 0.9110 (1.0977) levels.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9105 0.9090 0.9175 0.9108 - 0.9182
AUD / NZD 1.0980 1.0900 1.1000 1.0890 - 1.0979

NZD/GBP (GBP/NZD)

The New Zealand Dollar (NZD) has started the week well after suffering massive losses last week against the British Pound (GBP). Rebounding of 0.4900 (2.0415) the pair travelled back to 0.4950 (2.0200) amid news that UK businesses are still anxious about Brexit. A recent British Chamber of Commerce survey revealed that services sector employers were holding off hiring new staff because of ongoing Brexit concerns. UK monthly GDP prints tomorrow. The cross will continue to be volatile for a while yet, we suspect a push higher in the Pound will eventuate once Brexit has been resolved.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.4925 0.4890 0.5000 0.4897 - 0.5091
GBP / NZD 2.0304 2.0000 2.0450 1.9643 - 2.0422

 NZD/CAD

The Canadian Dollar (CAD) has continued its run higher against the New Zealand Dollar (NZD) pushing below through 0.8330 Friday. Canadian Unemployment figures surprised markets adding 63,000 people to the workforce with the unemployment figure remaining at 5.9%. Crude oil has come off its high but still trades over 74.00 per barrel and has boosted the Loonie across the board. Monday has seen profit taking in NZD pushing the pair back to 0.8380. Canadian Holiday today (Thanksgiving day) so markets will be quiet and volumes low.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8355 0.8300 0.8700 0.8323 - 0.8473

NZD/EURO (EURO/NZD)

The New Zealand Dollar (NZD) has made back losses early this week against the Euro (EUR) bouncing from the low of 0.5575 (1.7940) to trade back to 0.5610 (1.7820). Softer German industrial production and Italian budget headlines have put the Euro on the back foot. Investors are perceiving the Italian budget and debt levels to be far too risky as Italy try to resolve the problem of increasing growth without raising debt levels. August 2015 level around 0.5550 (1.8000) looks to close for comfort, further NZD weakness could see a retest of this level.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5611 0.5580 0.5715 0.5578 - 0.5720
EUR/NZD 1.7822 1.7500 1.7920 1.7482 - 1.7928

NZD/YEN

The New Zealand Dollar (NZD) continues to trade weaker against the Japanese Yen (JPY) falling to a low of 72.70 in risk averse conditions. Softer Business confidence, weaker global dairy prices and Yen support has all played against the kiwi. We are still in a bearish trend from the high of 75.50 with heavy support at 72.20 the low of July 2016. Business Manufacturing index prints later in the week and may reconfirm recent business pessimism with the NZ economy.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 72.85 72.20 75.50 72.75 - 75.34

AUD/USD

The Australian Dollar (AUD) has declined to another multi month low of 0.7040, these are levels last seen in February 2016 against the US Dollar (USD). The pair was trading above 0.7200 at the start of last week showing a considerable decline stemmed by the RBA minutes on Tuesday. Rising household debt levels and falling house prices will continue to weigh on the Aussie well into next year with recent construction figures confirming the recent boom is coming to an end. Solid US Jobs data and a combination of Fed speak and surging Treasury yields have created a deterioration in risk sentiment and heavy buying interest in US Dollars. US Producer Index releases Thursday and should be positive in line with recent records.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7078 0.7040 0.7200 0.7043 - 0.7235

AUD/GBP (GBP/AUD) 

Brexit news continues to knock the Australian Dollar (AUD), British Pound (GBP) to all corners with the pair reaching a low of 0.5370 (1.8615) last week at the close, a 19 June 2016 low. We have seen a shift higher Monday with pair travelled back to 0.5430 (1.8440) amid news that UK businesses are still anxious about Brexit. A recent British Chamber of Commerce survey revealed that services sector employers were holding off hiring new staff because of ongoing Brexit concerns. UK monthly GDP prints tomorrow and could give the Pound further stimulus to retest the low of 0.5370 (1.8615). Overall Brexit headlines will continue to hold key ongoing direction as a result is closer to being agreed.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5409 0.5370 0.5460 0.5370 - 0.5550
GBP / AUD 1.8487 1.8310 1.8620 1.8018 - 1.8623

AUD/EURO (EURO/AUD)

The Australian Dollar (AUD), Euro (EUR) cross continues to be choppy trading over the week from 0.6260 (1.5980) to a low of 0.6120 (1.6340) bouncing off early month support. Aussie Trade Balance and Retail Sales boosted the currency momentarily after the Government surplus increased to 1.6 Billion beating forecasts of 1.4 Billion but the main price action was seen with Italian Budget blowouts as the October 15 deadline looms. The long-term bearish channel is still in play from the high of 0.7300 (1.3700) in January 2017 as we think momentum still lies with the Euro.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6160 0.6115 0.6250 0.6116 - 0.6250
EUR/AUD 1.6233 1.6000 1.6350 1.5999 - 1.6351

AUD/YEN

Last week’s Australian Dollar (AUD) strength against the Japanese Yen (JPY) came to an end topping out at 82.50 with Australian Building Approvals taking a hit. Australia’s constructions industry is coming off a long period of booming prices and recent figures show that residential construction will be heavily reduced compared to levels seen in recent times. The Aussie traded back under 80.00 to 79.75 and continues to look heavy with NAB Business confidence this afternoon.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 80.05 78.70 82.00 79.77 - 82.44

AUD/CAD

The Australian Dollar (AUD) continued its decline against the Canadian Dollar (CAD) sliding to 0.9120 with Canadian employment numbers boosting the CAD. September figures showed a rise in the number of people who entered the workforce at 63,000 with the unemployment rate remaining at 5.9%. The cross is currently trading at 0.9170 with a slight fall in Crude Oil prices taking the pair off its low. Canadian Holiday today expect volumes to be thin.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9175 0.9100 0.9470 0.9108 - 0.9262

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Market commentary:

Brett Kavanaugh has been sworn in to the US Supreme Court after weeks of unsettling controversy. After the FBI's investigation into claims of sexual assault the Senate have backed his nomination by a vote of 50 to 48. This clearly falls into the hands of President Trump ahead of important midterm elections in November. Hundreds of people protested outside Capitol Hill in Washington against his nomination. The appointment to the US Supreme Court is for life and strengthens the current conservative government's control of the nine judge panel who have final say of law. The president tweeted - I applaud and congratulate the US Senate for confirming our great Nominee to the United States supreme court. Trump also caused a stir when he said he was 100% certain the women accusing Kavanaugh of sexual assault had named the wrong person - how in the hell would he know? Mid-term US elections will be interesting with potentially many women voters to vote "democratic" in a continued show of outrage. Since the mid 60's women have out voted men in every election, republicans should be concerned about this. US and global equities have traded off their highs from Thursday in what promised to be another week of record setting never eventuated. Markets turned ugly with the DOW falling back 200 points to close the week 1% down. The S&P and the NASDAQ also gave back gains closing down over 1% and 3.5%. US Non-Farm Payroll printed down for September at 134k based on 185k expected but an upwardly revised August figure made up for the shortfall. US Unemployment fall to the lowest level since 1969 at 3.7%. The tightening job market is contributing to push up interest rates higher - significantly the 10 year US Treasury note rose to 3.23% and hit the highest level since 2011. Notably the 2 year yield advanced to 2.89 amid strong US data. The tipping point for investors to sell equity products and buy bonds must be fast approaching and has the impact to drop current equity prices significantly for some time. The NZ Dollar continues to trade lower, the weakest currency of the G10 over the past week. At some point we should see a correction to the upside when traders and Investors bail on short positions, for the meantime this week’s quiet local economic data is light and shouldn't offer up any changes to recent price activity. US holiday (Columbus Day) and Japanese holiday (Health Sports Day) should make for light trading conditions through to Wednesday.

Australia

Experts out there are predicting the Australian Dollar may continue to slide down to mid 60's this year against the greenback. There have not been many weeks where it has pushed higher since the massive decline from 0.8130 early this year. Descending through 0.7000 seems a likely scenario now with tomorrow's and the week’s only significant local data likely to not give the Aussie Dollar much upside momentum. The building industry is struggling at the moment which became evident in the Building Approvals figures published the indicator reading - 9.4%. Australia are in the tail end of a construction and infrastructure boom but this looks to be easing quicker than predicted with mining and other industries spending less on construction. Friday's Retail Sales printed at 0.3% bang on expectations offering no upside for the currency. High commodity prices equal a higher Australian Dollar- at the moment we are not seeing this with coal and iron ore prices down based on a struggling China construction industry.

New Zealand

US Non-Farm Payroll Friday printed well short of market expectations in September but upwardly revised August numbers made up for the shortfall. US unemployment followed falling to 3.7% the lowest level since 1969. The US Treasury note improved to 3.23% its highest level in 7 years with investors selling out of equity markets, the DOW, Nasdaq and S&P all closing lower. The New Zealand Dollar reacted negatively continuing its bearish run into the depths. Global themes this week will be offshore drivers, we are expecting further trade discussions to surface again. China has pumped 109 Billion into their economy recently after the impact of US tariffs is starting to show on the economy.

United States

The US Dollar has been the strongest performer over the past 10 days against all the G10 except the GBP. Non-Farm Payroll figures released Saturday morning a little down on expectations of 185,000 jobs added coming in at 135,000 for September. An upwardly revised August NFP number netted out any negative price action. The official US unemployment figure is now 3.7% after 3.8% was widely expected raising the bar once again in the US economy. The US 10 Year Treasury Bond rose to 3.23% along with the two year Bond putting pressure back on US Equity markets. The correlation between Govt Bonds yields and Equity prices are heavily aligned. Months back investors were starting to become concerned with the equity/bond relationship which have worrying concerns for their portfolios. We think the pivot point which turns investors out of equities into Bonds was around the 3% area. We have long surpassed this level with the recent spike to 3.23%, it seems just a matter of time before we see major corrections in US equity indices, S&P, Nasdaq and the DOW. Rising inflation diminishes fixed income returns and indirectly threatens bond markets by triggering central banks to raise interest rates far more aggressively. US Holiday Monday and crucial CPI data releasing Friday the main event.

Europe

Softer German industrial production has weighed on the Euro early in the week down 0.3% from the previous month, the indicator down the last 4 occasions in the past 5 months. The Euro slumped to 1.1460 against the greenback trading down to last week's low. The Euro demise assisted by strengthening US Treasury Yields with the Fed facing inflation risks which sees the Fed raising rates as fast as the possibly can. The standoff between Italian government and the European Union continues to spook markets with budget targets. Italian equities have plummeted since the budget deficit was announced with proposals to be handed to the EU on October 15. The Japanese Yen has rallies on the back of safe haven assets. The ECB meeting minutes later in the week the only stand out this week.

United Kingdom

The EU are in the throes of offering the UK a trade deal which will be more detailed than any of the previous agreements. The deal will contain snippets of Theresa May's demands for trade and security, the agreement will be presented this Wednesday. Talks will continue for a while yet with expectations that a Brexit deal can be reached next month. The offer will fall short of what May wants but will be worded so that changes can be made and May is able to sell it in a positive light. The downside for Theresa May is that voting could be persuaded by a less than perfect deal just to get Brexit across the lines. The Irish border solution remains a key discussion point and could derail negotiations, a solution is expected to be released sometime this week. The British Pound looks to extend on last week’s gains post 1.3100, we would not be surprised if 1.3200 is retested if Brexit news prints well and Wednesdays monthly UK GDP is over 0.1% growth.

Japan

The Japanese Yen has started the week firmer against its rivals. A US Holiday Monday saw light trading conditions as the greenback drifted lower across all main currency pairs. Despite higher US yields the Dollar broke through 113.50 support. The Chinese Yuan has slid to its lowest level since mid August after the central bank move to help the economy was pushed aside sparking risk off markets, equity markets closed lower. The Japanese Yen posted small gains on Friday after mixed US employment data with NFP falling to 134,000 its smallest gain in over a year, well short of the estimate of 185,000. A factor in the figures was due to hurricane Florence, many people were unable to unable to make it into work because of the storm. The Bank of Japan has acknowledged that reaching its target of 2.0% will be tough with Japanese officials remaining stumped with how to deal with the elusive 2% goal. The next BoJ meeting is on the 31st May and its safe to say they will hold rates as they are.

Canada

The Canadian Dollar has underperformed in what has been a slow start to the week with US and Japanese Holidays. The recent move seems to relate to the recent pull back in Crude Oil prices. The US Dollar rose by a quarter percent over the Loonie trading at 1.2960. Canada added 63,000 jobs smashing estimates of 25,000 driven by an improvement in part time employment. The unemployment rate remains unchanged at 5.9%. The Fed have reiterated they will continue with its policy of rate hikes into 2019, this will put pressure on the Bank of Canada to follow and raise rates also. The BoC will hold its next monetary meeting on the 25th October and with solid revised US employment figures printing the odds of a hike have increased which should ultimately send the Canadian Dollar higher.

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USD 
NZD
End of day UTC
Source: CoinDesk

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1 Comments

62 looks achievable in the next week or so