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US based indices are down over 4% which marks the third biggest weekly loss this year; CPI figures published well up on expectations this morning pushing the NZD higher to 0.6595; NZD is back trading above 0.9200 levels against the AUD

US based indices are down over 4% which marks the third biggest weekly loss this year; CPI figures published well up on expectations this morning pushing the NZD higher to 0.6595; NZD is back trading above 0.9200 levels against the AUD

By Neven Fisher*:

Twas a week dominated by Equity movement. Stocks rebounded off lows Friday with markets posting gains of over 1%. While the Friday gains were a good way to end the week we must remember that overall all US based indices are still down over 4% which marks the third biggest weekly loss this year. The DOW had the largest falls, down over 5% and still shows downward momentum. Crude Oil ended a four week surge higher but has posted a 4.5% loss much the same as the indices. Holders of long equity positions never reacted with panic selling, instead markets corrected closing the week higher.  A major factor in the equity movement was the spike in US interest rates, in particularly the 10 Year treasury bond moving into lofty territory Thursday when it spiked at over 3.25% causing the sell off and damaging risk sentiment. Brexit negotiations continued over the weekend with Brexit secretary Dominic Raab travelling to Brussels to try and agree on final details of a transition deal in advance of the EU leaders meeting on Wednesday. No signs of an Irish border resolution has been agreed yet, the only major part of the deal still missing in what turned out to be a tense stalemate. Both parties the UK and EU will more than likely miss this week’s meeting in Brussels on Wednesday. Both sides seem to have given up on a resolve this week with everyone now starting to become increasingly nervous with time running out before the UK's exit in March 2019. Crude Oil jumped in value to 72.18 amid rising tensions between the Saudi Arabia and the US over missing journalist Jamal Khashoggi after he walked into the Saudi Arabia's consulate in Turkey to get some documentation sorted for his upcoming wedding. So far the US has stayed clear of the controversy but this may have changed after President Trump said "severe punishment" against the Kingdom if leaders are found responsible for the killing of the Washington post columnist. This week we have key market data announcements, UK and Canadian CPI and US and UK Retail Sales along with Australian Unemployment.

Major Announcements last week:

  • US CPI prints at 0.1% down from 0.2% expected
  • US Retail Sales prints at -0.1% down from th 0.4% expected.
  • NZ quarterly CPI releases at 0.9%, higher than 0.7%, y/y 1.9%
  • Equities go lower- the Nasdaq down 1% making markets increasingly nervous

NZD/USD

CPI figures published well up on expectations this morning pushing the New Zealand Dollar (NZD) higher to 0.6595 vs the US Dollar (USD). Quarterly CPI printed at 0.9% beating market forecasts of 0.7%, year on year CPI is now at 1.9% the fastest growth for inflation since the third quarter of 2017. Talk of the RBNZ lowering the cash rate would surely be quashed with Adrian Orr and the RBNZ to meet on November 7th to discuss future policy. US Retail Sales for September printed at 0.1% well down on the 0.7% figure markets were expecting, the figure skewed based on a lack of restaurant takings because of the impact of Hurricane Florence. Offshore risk is still creating most of the direction in markets with the kiwi still trading in a bearish channel from mid-April, buyers of USD should look at this spike as prices above 0.6500 represent better buying.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6575 0.6330 0.6600 0.6428 - 0.6594

NZD/AUD (AUD/NZD)

The New Zealand Dollar (NZD) is back trading above 0.9200 levels against the Australian Dollar (AUD) after NZ quarterly CPI sent the kiwi higher across the board. Quarterly CPI released Tuesday at 0.9% well above market predictions of 0.7%, year on year sits at 1.9% well above the RBNZ’s earlier forecasted 1.4%. Post the release the kiwi travelled to 0.9237 before dropping back. Investors now target Thursday’s Aussie employment numbers for confirmation of support above 0.9200. Last month’s August job numbers showed a massive increase of 44,000 were added to the workforce - expectation are high for good print of September figures. This will certainly put pressure on the kiwi in the medium term.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9207 0.9130 0.9250 0.9096 - 0.9237
AUD / NZD 1.0847 1.0810 1.0950 1.0826 - 1.0994

NZD/GBP (GBP/NZD)

The British Pound (GBP) has slipped further, continuing last week’s weak performance against the New Zealand Dollar (NZD) dropping to 0.4985 (2.0060) as the kiwi eyes the psychological barrier of 0.5000. Brexit news has not helped the Pound gain any real momentum allowing the kiwi to push higher. NZ quarter CPI figures released earlier today at 0.9% higher than the 0.7% sending the kiwi briefly to 0.5013. Currently we are trading at 0.4995 (2.002). With a slew of UK related data to print including unemployment later today direction is tough to gauge. Retail Sales Thursday will be the key release.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.4998 0.4890 0.5020 0.4885 - 0.5013
GBP / NZD 2.0008 1.9920 2.0450 1.9950 - 2.0473

 NZD/CAD

The New Zealand Dollar (NZD) has continued last week’s momentum trading higher against the Canadian Dollar (CAD) to 0.8540. Falling Crude Oil prices from the recent high has seen the CAD back under pressure. With word going around the next RBNZ move could be to lower the cash rate this could put added strain on the kiwi. Certainly with the Bank of Canada expected to raise rates next week we should see some of this starting to be priced in. Expectations are to see a retest of 0.8330 levels this week.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8535 0.8460 0.8600 0.8342 - 0.8562

NZD/EURO (EURO/NZD)

New Zealand (NZD) quarterly CPI figures Tuesday printed up on market expectation sending the kiwi to 0.5700 (1.7560) vs the Euro (EUR). Risk sentiment is tough to gauge at the moment, with US equities coming off over 5% in the last week, as we would usually see the NZD - a risk related currency - go much lower than it has done against the Euro. Midday Tuesday we have seen the NZD retrace lower back to 0.5670 (1.7630). The 12 June bearish decline from 0.6025 (1.6600) is still on the board with further declines in the kiwi likely.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5674 0.5580 0.5700 0.5595 - 0.5694
EUR/NZD 1.7625 1.7550 1.7920 1.7563 - 1.7875

NZD/YEN

The New Zealand Dollar (NZD) has returned to trade just off last week’s highs against the Japanese Yen (JPY) of 73.30. This morning’s Quarter 3 CPI release has printed at 0.9% based on the forecasted 0.7%. The number is well up on the RBNZ’s forecasted 1.4% year on year figures which now stands at 1. 9%, increasing oil prices and a weaker NZD being the main drivers. Upside momentum could be limited to 75.00 as risk averse markets resume. Heavy support sits at 72.30 based on three recent bounces off this level. Anything around 74.00 looks to be reasonable buying levels.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 73.58 72.30 73.80 72.36 - 73.71

AUD/USD

We have seen the Australian Dollar (AUD) trade up this week, a continuation of last week’s momentum against the US Dollar (USD), to a high of 0.7150. Markets are still choppy signifying nervous conditions with equities closing lower overnight. US Retail Sales released down at 0.1% from the 0.7% expected boosting the cross currencies. All eyes are on Aussie employment figures to release Thursday and should reflect a buoyant labour market with 15,200 jobs expected to be added. Long term downside still exists for the Aussie from the high in January 2018 of 0.8120 with markets wary of further equity fallout.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7136 0.7100 0.7150 0.7045 - 0.7147

AUD/GBP (GBP/AUD) 

The Australian Dollar (AUD) started the week on the backfoot against the British Pound (GBP) after Brexit headlines took the pair to 0.5435 (1.8400). The Pound recovered Tuesday on a lower close in equity markets has once again spooked markets. After what looked to be a positive victory on Friday has fast become worry, the Nasdaq closing -.90% with global tensions with Saudi Arabia and the US heating up over the disappearance of a prominent journalist. Buyers of GBP should consider the current spike above 0.5410 (1.8480)

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5424 0.5340 0.5445 0.5339 - 0.5439
GBP / AUD 1.8433 1.8370 1.8720 1.8386 - 1.8730

AUD/EURO (EURO/AUD)

The Euro (EUR, Australian Dollar (AUD) pair slid to 0.6170 (1.6200) Monday on risk fears against the Australian Dollar (AUD) but has since consolidated around the 0.6190 (1.6235) area. 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. Markets eye Thursday’s Australian employment data to gauge further direction with markets expecting a decent release stemming from the incredible August figures.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6158 0.6120 0.6190 0.9166 - 0.9317
EUR/AUD 1.6240 1.6150 1.6350 1.6148 - 1.6357

AUD/YEN

The Australian Dollar (AUD, Japanese Yen (JPY) pair remains at the mercy of offshore influences. Trading just shy off 80.00 Monday the cross has slipped back to 79.70 with equities closing lower on the day. We favour downside momentum this week the continuation of the decline from early October’s 82.50 with risk sentiment low, at least until Aussie Employment data releases on Thursday to gauge further direction. 10 September’s 78.70 low is near term support.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 79.87 79.00 0.8060 79.09 - 80.59

AUD/CAD

The Australian Dollar (AUD) has stabalised around the 0.9270 area against the Canadian Dollar (CAD) Tuesday after reaching 0.9315 levels during early trading sessions yesterday. A positive BoC Business Survey highlighted growth was looking solid with the indicator at record highs businesses are optimistic. Most companies expected upward costs arising from tariffs with a majority expecting inflation to be at the top of the BoC inflation range. Monthly CPI prints Friday with markets expecting a reading of -0.1%. We are expecting downward momentum over the week with a retest of 0.9200

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9262 0.9100 0.9315 0.9166 - 0.9317

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Market commentary:

Twas a week dominated by Equity movement. Stocks rebounded off lows Friday with markets posting gains of over 1%. While the Friday gains were a good way to end the week we must remember that overall all US based indices are still down over 4% which marks the third biggest weekly loss this year. The DOW had the largest falls, down over 5% and still shows downward momentum. Crude Oil ended a four week surge higher but has posted a 4.5% loss much the same as the indices. Holders of long equity positions never reacted with panic selling, instead markets corrected closing the week higher.  A major factor in the equity movement was the spike in US interest rates, in particularly the 10 Year treasury bond moving into lofty territory Thursday when it spiked at over 3.25% causing the sell off and damaging risk sentiment. Brexit negotiations continued over the weekend with Brexit secretary Dominic Raab travelling to Brussels to try and agree on final details of a transition deal in advance of the EU leaders meeting on Wednesday. No signs of an Irish border resolution has been agreed yet, the only major part of the deal still missing in what turned out to be a tense stalemate. Both parties the UK and EU will more than likely miss this week’s meeting in Brussels on Wednesday. Both sides seem to have given up on a resolve this week with everyone now starting to become increasingly nervous with time running out before the UK's exit in March 2019. Crude Oil jumped in value to 72.18 amid rising tensions between the Saudi Arabia and the US over missing journalist Jamal Khashoggi after he walked into the Saudi Arabia's consulate in Turkey to get some documentation sorted for his upcoming wedding. So far the US has stayed clear of the controversy but this may have changed after President Trump said "severe punishment" against the Kingdom if leaders are found responsible for the killing of the Washington post columnist. This week we have key market data announcements, UK and Canadian CPI and US and UK Retail Sales along with Australian Unemployment.

Australia

The Australian Dollar was a top performer last week closing higher against the US Dollar at 0.7120 after rising to 0.7140 earlier in the week. The overall bearish momentum is still firmly locked in based on the recent trend patterns and global risk themes. Australian Unemployment prints Thursday, the only key indicator of note on the docket this week and will be viewed with investor interest. 5.3% is the market forecast with just over 15,000 people expected to be added to the workforce. Markets will be expecting a decent number after the huge 44,000 last month beating expectation by over 25,000. The Australian voting public is quietly warming to the August 2018 newly appointed Scott Morrison, Australia's current liberal party Prime Minister. With Australia's next national election in May 2019 pols still indicating the ruling Liberal-National coalition is still trailing the Labour party 46% to 54% indicating Labour's lead could be widening out. Offshore risks and sentiment will still play a part this week.

New Zealand

The New Zealand Dollar was the strongest performing currency last week against the group of majors, only weaker than the Japanese Yen with a turnaround in risk sentiment investors snapped up the Yen. The kiwi closed the week around 0.6500 against the big dollar after starting the week at 0.6440, perilously close to a 3 year low and looking like support of 0.6350 was going to be tested. With the kiwi easing off its highs its likely to resume downward momentum this week unless quarterly CPI publishes well. News update: CPI has come in at 0.9% beating predictions of 0.7% pushing the kiwi significantly higher through 0.6590 against the USD. ASB have printed suggestions the NZ OCR cash rate could be cut with current dormant inflation. The question is when will the NZ economy pick up the slack in growth to absorb the excess capacity in the economy. The remaining week's price action will be driven by offshore global risk sentiment.

United States

The main talking point of the week was the decline of US Equities.  The DOW and S&P were down over 4.00% and the Nasdaq over 4.5% sparked by the 10 Year Govt Bond price lifting further to 3.261% the highest level since 2011, which comes as a direct link to the US Govt raising the cash rates to tighten policy. President Trump voiced his opinion every day last week to everyone except the Fed Chair Jerome Powell how filthy he was with the Federal Reserve raising rates calling its latest decision to hike "crazy" and "out of control". Markets are rapidly pricing in a hike for December 14th it what will be the ninth increase since 2015 in the cycle. With Equities down last week the fed will most likely not going to persuade the fed to alter from its current tightening program. Core Retail Sales is the main point of interest on the economic docket this week.

Europe

On the weekly open the Euro initially dropped to 1.1540 against the US Dollar but has since reached 1.1600, up a quarter percent.  US Retail Sales has come in at 0.1% m/m against 0.7% markets were expecting putting pressure on the big dollar. The week ended positively with the Euro after German inflation climbed 2.3% in September, its strongest gain since November 2011. Eurozone inflation has been moving higher recently closing closer to the ECB’s target of 2%. Stronger inflation has reinforced the possibility the ECB could raise rates sooner over later which would be the first time in many years. Recent minutes from the ECB’s September meeting saw debate from policymakers whether to lower their risk forecasts as they become increasingly concerned with global trade tensions could dampen the Eurozone growth. The outcome was that recent growth was enough to allow the ECB to continue with their “steady” pace of tightening policy. Sitting around the 1.16 area against the greenback we think risks lie to the downside with medium level US economic data still to release this week.

United Kingdom

The British Pound traded all over the park last week with continued Brexit concerns weighing on potential outcome and overall sentiment. Weekend negotiations continued with EU's Dominic Raab travelling to Brussels in an attempt to piece something together. No sign of a breakthrough surfaced via media with the Irish Border the major deal breaker still unresolved. An agreement was meant to be nailed down and released this Wednesday at the EU leaders meeting but looks increasingly unlikely due to the stalemate situation between the two negotiating parties. The British Pound has gaped lower on the Monday open based on weekend headlines and could retest early October levels into the 1.29's against the USD if this week extends more of the same recent disaster. Yearly UK CPI Wednesday and Thursdays Retail Sales are the key data releases of the week and could hold key momentum in the Pound to hold recent support levels- certainly 1.3000 vs the Dollar.

Japan

The Japanese Yen continues to make gains over every currency outperforming across the board. Japanese Yen demand has been the key as investors and markets climb into risk safe investments. US Equity movement last week with all indices losing over 4% of their value and negative shocks to the global economy are taking its toll. Bank of Japan's governor spoke from Bali over the weekend saying the BoJ is taking longer to achieve its 2% inflation target, which is currency 1% and will continue the current yield curve control at the current level of interest. When they finally exit their massive monetary stimulus we should see a shift in the target rate. For now policy will stay as is. Japanese Trade Balance is Wednesday.

Canada

The Canadian Dollar was the weeks worst performing currency. Recent fundamental indicators have not really had much impact instead the Canadian Dollar has deferred to wider price action in particularly from the recent fallout from the collapse in US Equities. Crude Oil has also been dragging it down coming off a high of over 75.00 back down to 71.60 Tuesday. The Bank of Canada released its Business Outlook Survey indicating companies are expecting sales growth to improve with reports suggesting labour shortages are a good sign of things to come. A hike is widely expected on October 24th to 1.75% the data confirming we should get a hawkish statement with the possibility of further hikes in December or January. The Loonie is trading at 1.2980 against the greenback stronger from the weekly open of 1.3020. Canadian monthly CPI prints Friday with -.01% growth expected.

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Days to the General Election: 27
See Party Policies here. Party Lists here.