The potential future of Donald Trump's presidency could be decided this week; NZD held its ground late Friday reaching a high of 0.6685 against the USD after Non Farm Payroll numbers printed; NZDAUD pair continues to be range bound

By Neven Fisher*:

Melbourne Cup runs today at 5.05pm NZT.
The potential future of Donald Trump's presidency could be decided this week with US Midterm elections taking place. The Democrats need only 23 further seats to make a total of 218 to take control of the House, polling starts Wednesday NZ time. The world's economies have enjoyed a buoyant year with the international Monetary Fund in April saying the planet was enjoying the most united upswing since 2010. The mood however has changed in October when they cut its global outlook saying global growth has plateaued. The change is being led by China with the weakest current stretch of performance since 2009 is expected to get worse unless a favorable deal can be negotiated in the trade war with the US. The Eurozone is also losing pace expanding in the third quarter less than the previous quarter as Germany and Italy staled. The big question now is if recent US growth can continue providing good results on the back of protectionism and higher interest rates heading into 2019 and provide a counterweight for the rest of the world.  Reports have indicated that a potential trade deal could be close between China and the US. Trump's lead adviser Kudlow has played this down when he said "no massive movement to deal with China" and "we're not on the cusp of a deal". Chinese manufacturers who have the misfortune of being on the list of affected companies who will have tariffs raised from 10% to 25% on a 1 January 2019 are flat out producing products for export into the US markets to make shipping deadlines before the due date. US Non-Farm Payroll employment increased by a healthy 250,000 jobs Friday for the month of October well up on the forecasted 190,000. Wage growth has risen by 3.1% year on year, this is the fastest increase since 2009. The greenback rallied along with the US 10 year treasury bond jumping 8 points to 3.21%. US equity markets turned negative - the Nasdaq falling 1.20%. Three central banks will release cash rate announcements this week starting with the RBA Tuesday with no change from the 1.5% expected. RBNZ Thursday with no change from 1.75% expected and Federal Reserve also who will keep their benchmark rate at 2.25%

Major Announcements last week:

  • ANZ NZ Business Confidence prints down
  • Bank of Japan leave rates at -0.10%
  • Canadian monthly GDP releaes at 0.1% from 0.0% expected
  • Australian Trade Balance prints at a whopping 3.02B compared to 1.71B markets expected
  • Bank of England cash rate remains unchanged at 0.75% in a 0-9 vote
  • Aussie Retail Sales publishes at 0.2% down on the 0.3% expected
  • US Non-Farm Payroll prints higher at 250,000 new jobs compared to 194,000
  • US Manufacturing prints higher at 60.3 over 59.3 predicted

NZD/USD

The New Zealand Dollar (NZD) held its ground late Friday reaching a high of 0.6685 against the US Dollar (USD) after Non Farm Payroll numbers printed. The US Labour dept showed employment increased by a massive 250,000 jobs in October well in front of the 194,000 expected. Chinese data Monday helped the kiwi push higher back through 0.6660 but any upside from here looks to be capped below 0.6700. Tomorrow’s employment figures could pressure the kiwi if we fail to see a drop in the unemployment rate of 4.5%. Thursday’s RBNZ cash rate and monetary statement shouldn’t offer up any surprises with markets keen to see the overall tone of future policy.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6660 0.6600 0.6700 0.6515- 0.6689

NZD/AUD (AUD/NZD)

The New Zealand Dollar, Australian Dollar (NZD/AUD) pair continues to be range bound. Trading over the past two weeks between 0.9190 (1.0880) and 0.9295 (1.0760) the pair remains in its happy place. We don’t expect a bounce from this range over the week even though we have a bunch of tier one data to publish. We see no surprises from today’s RBA announcement with the benchmark rate to remain at 1.50%. Thursday NZ Reserve Bank governor Adrian Orr is expected to leave rates unchanged at 1.75%. Even though statistics show the economy has grown over the past few months economists are still questioning this suggesting a slow down is on the horizon with business confidence remaining at low levels. Currently trading at 0.9230 (1.0835) Tuesday lunch.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9233 0.9300 0.9260 0.9493- 0.9263
AUD / NZD 1.0820 1.0800 1.0750 1.0796- 1.0878

NZD/GBP (GBP/NZD)

Brexit headlines boosted the British Pound (GBP) higher off the open Monday to 0.5100 (1.9610) against the New Zealand Dollar (NZD) but has edged higher during the London trading session. UK Services Purchasing Managers Index (PMI) printed down on expectations at 52.2 based on 53.4 markets were expecting showing a seven month low as firms brace for a slow 2019, the result the poorest since the 2016 Brexit referendum. Interest this week will be with Thursday’s RBNZ announcement and Fridays monthly UK GDP figures. Price action over the week could be anywhere if we throw Brexit into the mix.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5100 0.5090 0.5170 0.5082- 0.5169
GBP / NZD 1.9610 1.9350 1.9650 1.9345- 1.9678

 NZD/CAD

The New Zealand Dollar (NZD) started the week where it left off against the Canadian Dollar (CAD) pushing up from the open of 0.8680 to 0.8740 in thin Monday markets. Canada’s Poloz spoke overnight saying the neutral rate estimated at 2.5-3.5% is not a precise destination. It’s more like a neighbourhood - future rate hikes could be faster or slower. Two statements of complete meaningless garble. Early impressions are suggesting the Kiwi wants to go higher in the short term, a possible retest of 0.8820 is in sight with NZ employment data to print tomorrow with the official cash rate Thursday.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8736 0.8650 0.8820 0.8561- 0.8748

NZD/EURO (EURO/NZD)

The Euro (EUR) continued its decline last week against the New Zealand Dollar (NZD) dropping to 0.5840 (1.7130). We see further declines in the Euro likely through to Thursday’s RBNZ announcement where the cash rate is expected to remain unchanged at 1.75%. A retest of 0.5880 (1.7000) is the next target with a with a lack of Eurozone data to publish. The bullish channel from 0.5585 (1.7910) is still in play, we don’t see this being broken in the medium term.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5837 0.5765 0.5865 0.5736- 0.5861
EUR/NZD 1.7130 1.7050 1.7350 1.7063- 1.7435

NZD/YEN

Japan’s Kuroda spoke early Monday putting the Japanese Yen (JPY) on notice versus the New Zealand Dollar (NZD) the pair pushing higher off the open of 75.00 to 75.50 the 1 October high. It’s mostly NZ data to print over the week starting with employment data Wednesday. Risk factors could play a part with direction. RBNZ cash rate Thursday. With a head a shoulder pattern emerging on the chart we think the kiwi could retest 76.50 this week.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 75.46 75.00 76.20 73.32- 75.62

AUD/USD

The Australian Dollar (AUD) looks to be in the mood to continue last week’s bull rally and extend gains made mid to late week against the US Dollar. Last week’s Non-Farm Payroll release took the pair off the high of 0.7250 back to 0.7180 on USD strength after figures surprised to the upside. Ending the week Australian Retail Sales printed slightly down on expectations creating a short sell off in the Aussie. Price this week looks retest last week’s high, this will be largely based on today’s RBA Cash Rate announcement. If the Central Bank are dovish with future monetary policy as we expect due to recent data the Aussie will be pressured. Later in the week we also have the federal Reserve cash rate and statement with no change this time around from the 2.25%

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7216 0.7180 0.7250 0.7063- 0.7259

AUD/GBP (GBP/AUD) 

The British Pound (GBP) gaped higher to 0.5525 (1.8090) on the weekly open against the Australian Dollar (AUD) after positive Brexit news bought back buyers into the Pound. Trading Tuesday at 0.5530 (1.8080) we have seen a slide below 0.5550 (1.8020) confirming a break of the bullish channel from 0.5350 (1.8700) of early October. Market interest will be on today’s RBA statement and cash rate with no change expected. A hawkish statement by governor Philip Lowe will certainly put further pressure on the Aussie heading into UK’s GDP Friday.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5523 0.5485 0.5600 0.5505- 0.5597
GBP / AUD 1.8106 1.7850 1.8230 1.7866- 1.8166

AUD/EURO (EURO/AUD)

This week’s price action in the Australian Dollar, Euro (AUD/EUR) pair should be no different to the last. Trading around 0.6320 (1.5820) Tuesday we expect upside momentum to drive the cross higher.  The Eurogroup met last night and discussed Italy’s budget woes with EU finance ministers calling for the Italian government to redraft the budget. The Eurogroup president Mario Centeno remains confident that Italy will agree to changing its spending plans despite Rome’s populist government insisting that it won’t do so. The Reserve Bank of Australian (RBA) will announce their cash rate today widely expected to be remain unchanged at 1.50%. Markets are predicting a hawkish tone with recent weak CPI data.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6322 0.6250 0.6355 0.6208- 0.6351
EUR/AUD 1.5820 1.5740 1.6000 1.5746- 1.6108

AUD/YEN

The Australian Dollar (AUD) has pushed higher off the weekly open to 81.70 against the Japanese Yen (JPY) after BoJ’s Kuroda put the Yen under pressure yesterday. A continuation of last weeks rally in price after Aussie Trade Balance figures surprised to the upside looks on the cards with 82.50 the next target, the three month high. Retails Sales took the Aussie briefly off its high last week when it printed at 0.2% based on 0.3% predictions. Focus now lies with today’s RBA 4.30 NZT - no surprises are expected.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 81.74 80.40 82.50 79.36- 81.94

AUD/CAD

Poloz put the Canadian Dollar (CAD) on the backfoot against the Australian Dollar (AUD) Monday, the pair pushing up from 0.9410 area early Monday to 0.9450. All interest will be on the RBA cash rate announcement today 4.30 NZT and should reflect recent economic data with no change expected. A retest of last weeks high of 0.9480 should come into the picture as long as the RBA is not to dovish in their monetary statement.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9460 0.9360 0.9560 0.9269- 0.9478

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Market commentary:

Melbourne Cup runs today at 5.05pm NZT.
The potential future of Donald Trump's presidency could be decided this week with US Midterm elections taking place. The Democrats need only 23 further seats to make a total of 218 to take control of the House, polling starts Wednesday NZ time. The world's economies have enjoyed a buoyant year with the international Monetary Fund in April saying the planet was enjoying the most united upswing since 2010. The mood however has changed in October when they cut its global outlook saying global growth has plateaued. The change is being led by China with the weakest current stretch of performance since 2009 is expected to get worse unless a favorable deal can be negotiated in the trade war with the US. The Eurozone is also losing pace expanding in the third quarter less than the previous quarter as Germany and Italy staled. The big question now is if recent US growth can continue providing good results on the back of protectionism and higher interest rates heading into 2019 and provide a counterweight for the rest of the world.  Reports have indicated that a potential trade deal could be close between China and the US. Trump's lead adviser Kudlow has played this down when he said "no massive movement to deal with China" and "we're not on the cusp of a deal". Chinese manufacturers who have the misfortune of being on the list of affected companies who will have tariffs raised from 10% to 25% on a 1 January 2019 are flat out producing products for export into the US markets to make shipping deadlines before the due date. US Non-Farm Payroll employment increased by a healthy 250,000 jobs Friday for the month of October well up on the forecasted 190,000. Wage growth has risen by 3.1% year on year, this is the fastest increase since 2009. The greenback rallied along with the US 10 year treasury bond jumping 8 points to 3.21%. US equity markets turned negative - the Nasdaq falling 1.20%. Three central banks will release cash rate announcements this week starting with the RBA Tuesday with no change from the 1.5% expected. RBNZ Thursday with no change from 1.75% expected and Federal Reserve also who will keep their benchmark rate at 2.25%

Australia

The Australian Dollar eased back off its highs Friday after a disappointing close to equity markets dragged risk associated currencies lower. At one point trading back over the 0.7200 area against the big Dollar after Trade Balance figures buoyed Aussie sentiment posting a hefty 3.02 Billion trade Balance based on market expectations of 1.71 Billion. This week’s main economic news of interest is the RBA cash rate and statement due today at 4.30 NZT. Last week’s weaker than predicted CPI inflation data could impact the tone with the overall inflation number well below the 2-3% target for the 11th quarter in a row. Even with the economy in its 27th year without no recession the economy has dangerously high household debt and stagnant wage growth which is putting as squeeze on household spending. Even though net exports and capital expenditure are stimulating the economy these offer no real impetus for the RBA to increase its benchmark rate. No further economic data of note is due to be published over the week. Good luck in the Melbourne Cup.

New Zealand

The New Zealand Dollar held onto gains last week in the wake of a stronger US dollar. The kiwi was the strongest performer surprisingly out muscling its main rivals. Tagging along with the Aussie Dollar trading higher in the wake of surprising Aussie Trade and Chinese data, risk currencies did well. Its widely expected the RBNZ will keep rates on hold this week- Thursday, but a no hike wasn't always a dead cert with some market participants suggesting the cash rate would drop. With recent economic data suggesting rates will stay the same looking ahead to 2019 may not be the case. With US company earnings over, stock market moves will resume normal price action this week. With all three US indices falling into the weekly close momentum could resume to the downside dragging the kiwi lower. Certainly if the NZ unemployment rate drops to 4.4% from 4.5% Wednesday the opposite could be said.

United States

The US Midterm elections kick off this Tuesday with polling starting at 6.00am Tuesday (NY time). The battle for congress is heating up with the fate of Donald Trump's presidency on the line. As it stands the democrats need an additional 23 seats to make up 218 required to take back control of the senate and drive a stake through the hopes of Donald Trump's future plans at the helm of USA. Traditionally the voting turnout with midterm elections is low but with 33 million votes already on the table the turnout of voters is set to be the biggest turnout in over 50 years. The anti-immigration moves recently deployed by the president with the clampdown on asylum seekers this falls at the heart of the midterms with intensity building over race related rhetoric. If the Republicans are ousted from the house and hand over congress to the Democrats President Trump's agenda and campaign promises are sure to be revised. Most importantly if the Democrats were to take control of the House it would allow the Democrats to start impeachment proceedings against the President, obviously something Donald Trump is clearly hoping to avoid. The Federal Reserve will keep their cash rate on hold until the December meeting at 2.25%

Europe

The Euro reached a high last week of 1.1455 but was quick to give back gains closing around the 1.1380 area versus the greenback. Risk aversion overshadowed US Non- Farm Payroll announcements with the better than predicted number of 250,000 failing to really give the US Dollar a decent push. Profit taking allowed the EUR to drift lower amid reports circulating that the ECB will consider TLTRO (Targeted long term refinancing options) in the December ECB meeting with the central bank requiring more funds. The Euro was the third worst performing currency outside the Swiss Franc and the Japanese Yen for the second straight week with risk associated currencies getting the nod, along with new Brexit related risks dropping the Pound sparking a EUR based sell off late in the week. A very quiet economic Eurozone calendar this week will offer no real support for Euro with it lacking any concrete drivers. Last week’s second tier data was mainly disappointing suggesting the EURO could drift lower this week.

United Kingdom

Brexit headlines continue to occupy British media. UK's Prime Minister Theresa may looks to have secured concessions from the EU to keep Britain in a customs union. This includes Ireland which effectively solves recent issues of a hard Irish border thus pioneering the way for a negotiated Brexit deal. May is also in the throes of securing an "economic partnership" of sorts with the EU. The deal would give UK financial services companies access to European markets post Brexit. UK's Cabinet will catch up today with a further meeting on Friday in the hopes of gaining enough support for the EU to announce a special summit. May still has many cabinet folk who would love her job so she will be vigilant to dot the I's and cross the T's this week. The British Pound rallied off the low of 1.2700 against the US Dollar to climb back above the 1.3000 physiological level before easing back to 1.2980. UK Manufacturing data and quarterly GDP print Friday.

Japan

The Japanese Yen struggled to conger up any decent momentum over the week - the worst performing currency battled against every main player falling 1.17% against the US Dollar. Recovering equity markets and increased risk sentiment left investors leaving the Yen. Bank of Japan's Governor Kuroda said in a statement it was necessary to continue to ease monetary policy with slow inflation - but not the same as we have done in the past 5 years. The governor introduced a large scale asset program in 2013 and it was the best thing to do but now as the economy improves with solid corporate earnings and tight labour markets the bank recognises that continuing the monetary easing could affect financial stability, he said. At last week’s Bank of Japan (BoJ) meeting the BoJ kept policy the same including setting short term interest rates at -.1% and keep low interest rates for an extended period of time. Average Cash Earnings (value in the employment income collected by workers) releases Wednesday

Canada

The Canadian Dollar has lost value five straight weeks and continues to struggle shifting off the bottom of the table against the major currencies. Crude Oil a big contributing factor coming from a high around the first of October at 77.00 to trade 62.72 now. Soft Canadian job numbers Friday with the number of new employed people releasing at 11,200 based on market predictions of 12,700 dented any upside momentum - the CAD losing half a cent against the Dollar. However, the employment rate ticked lower to 5.8% below the estimate of 5.9%. Interestingly while the CAD has underperformed the economy grew 0.1% in August, the economy has been mostly performing well and remains on track for annualised growth of 2% for 2018. This week sees governor Poloz speak later today about financial markets, with no other tier one significant data to publish.

Daily exchange rates

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USD 
NZD
End of day UTC
Source: CoinDesk

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