Markets are still figuring out what it all means post US elections and Fed policy announcement; NZD climbed to a four month high of 0.6817; NZD has continued to climb against the AUD

By Neven Fisher*:

Markets are still figuring out what it all means post US elections and Fed policy announcement. Initially the reaction has been mixed but with a general US Dollar up theme and risk on markets. We are still looking at Fed policy normalisation at a time where there is heaps of downside risks including global trade. Any downside to equity markets and sentiment from here will not bode well for risk associated products and could bring back topside failures in major currency pairs. With a US Holiday Monday celebrating veterans Day markets should ease into the week. The New Zealand Dollar was the standout performer last week with unemployment dropping to a 2008 low of 3.9% from the 4.4% markets were expecting. With risk factors this week expected to drive price action we could see the kiwi ease back towards last week’s open of 0.6650 levels.  EU and UK negotiators are close to a breakthrough with both sides aiming to get political approval on the Irish border backdrop. President Trump has upset fire besieged California when he tweeted about the mismanagement of forestland and threatened to cut federal funding to the state. Fires in southern California have killed more than two dozen people and destroyed over 6,500 buildings forcing the evacuation of over 250,000 people. The fires are the worst in California history with Trump expressing no sympathy for those caught in the fires, instead using the catastrophic event to criticise the state's environmental regulations. We have several key data releases on the economic docket but geopolitical news could influence shifts in currencies the most.

Major Announcements last week:

  • NZ Unemployment drops from 4.4% to 3.9%
  • RBNZ keeps rates on hold at 1.75%
  • Federal Reserve rate is unchanged at 2.25% with a Dec 20 hike expected
  • Italian Budget deficit remains unsettled with the EU
  • Brexit uncertainty drops the GBP to fresh lows
  • US Holiday Tuesday- Veterans Day
  • Canada Holiday Tuesday- Remembrance Day

NZD/USD

Late Friday the New Zealand Dollar (NZD) climbed to a four month high of 0.6817 against the US Dollar (USD) before easing back to close the week around the 0.6740 area. Equity markets have declined over 2% Monday night, the Nasdaq falling 2.81% with Industrial metals leading the way south. Crude Oil has broken support at 60.00 this morning also dropping to 58.84, the US President taking the blame, when he said recently that his policies have caused the decline. US CPI and Retail Sales are the key releases this week with Fed chair Powell speaking later in the week. The kiwi will be largely pushed around this week by risk associated events, with downside probability more likely and a retest of support at 0.6690 levels.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6715 0.6690 0.6820 0.6646 - 0.6796

NZD/AUD (AUD/NZD)

The New Zealand Dollar (NZD) has continued to climb against the Australian Dollar (AUD) Friday travelling back through the 0.9300 (1.0750) level reaching 0.9360 (1.0685) Tuesday. The kiwi has remained well in control since the RBNZ statement and cash rate announcement last Thursday. The statement wasn’t overly hawkish but with a huge boost when recent unemployment figures reported a fall from 4.4% to 3.9% the kiwi has 0.9400 (1.0640) now in its sights. Australian wage index Wednesday together with unemployment numbers Thursday should support the Aussie with a reversal back towards 0.9300 (1.0750). Last week we reported prices at 0.9300 were fairly lofty, buyers of AUD should consider current levels here, as we don’t think these will last.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9360 0.9090 0.9385 0.9216 - 0.9365
AUD / NZD 1.0673 1.0658 1.1000 1.0678 - 1.0851

NZD/GBP (GBP/NZD)

We saw a further sell off in the British Pound (GBP) to 0.5235 (1.9100) Monday a continuation of last week’s resuming decline against the New Zealand Dollar (NZD) as Brexit woes came back to haunt the Pound. Chief Brexit negotiator briefed the EU last night that there has been no progress with the Irish Border following negotiations. Unless progress is made by Wednesday a draft deal signed this month at the EU summit looks unlikely. UK yearly CPI releases Wednesday and Retail Sales Thursday to possibly offer support back into the Pound. As Brexit negativity continues the Pound should go lower with a possible retest of 0.5285 (1.8920) this week.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5224 0.5110 0.5245 0.5090 - 0.5246
GBP / NZD 1.9142 1.9070 1.9560 1.9061 -1.9645

 NZD/CAD

The Canadian Dollar (CAD), New Zealand Dollar (NZD) pair has started the week chopping around the 0.8900 area consolidating around current levels from the rally from 0.8700 early last week. A Canadian holiday today will see a lack of volume and extra volatility. Later in the week we are not expecting any tier one data to publish with only NZ Business Manufacturing Index and Canadian Sales of note. If Crude oil weakens through 60.00 this week we could see the CAD weaken with a retest of 0.9100

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8888 0.8770 0.9000 0.8715 - 0.8917

NZD/EURO (EURO/NZD)

The Euro (EUR) consolidated around the 0.5945 (1.6820) area against the New Zealand Dollar (NZD) late last week but has drifted lower Monday on Italian Budget issues. Italy have until the end of today to present the EU with their revised budget proposal after the first draft was rejected by the EU on grounds it didn’t meet rules on debt. The first copy suggested a deficit of 2.4% for 2019 well outside the EU’s target. Buyers of EUR will be happy with the massive reversal from the low of 0.5585 (1.7910) early October to current levels. Long term resistance of 0.6000 (1.6660) and 0.6030 (1.6580) sits perilously close. This week’s economic docket is light with Draghi speaking on Friday.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5981 0.5940 0.6035 0.5829 - 0.5995
EUR/NZD 1.6720 1.6570 1.6840 1.6800 - 1.7157

NZD/YEN

Japanese machine tool orders printed at -1.1% last night against expectations of 2.9% well under market expectations putting pressure on the Japanese Yen (JPY) as it took price lower to 76.50 against the New Zealand Dollar (NZD). Equity markets also were softer overnight with the Nasdaq down nearly 2.5% taking positive risk sentiment with it. This week’s economic data will be light with NZ Business Manufacturing Index Friday. Offshore risk associated with Brexit and Italian Budget issues should see the pair weaken further.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 76.34 75.50 77.30 75.31 - 77.26

AUD/USD

Late last week’s bearish mood in the Australian Dollar (AUD), US Dollar (USD) pair continued through to Mondays open and into Tuesday with risk investments such as equities and the Aussie Dollar taking a bath. The cross has deteriorated down to 0.7170 giving back all of last week’s gains with pivotal support of 0.7150 close. With a fair chunk of economic data to publish this week in both currencies as well as geopolitical risks associated with Italy budget issues and Brexit we could see further selling of Aussie Dollars. Key data of interest is US monthly CPI and Australian Unemployment with US Retail Sales Friday.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7170 0.7150 0.7300 0.7170 - 0.7300

AUD/GBP (GBP/AUD) 

The British Pound (GBP) slipped further into the red from the weekly open against the Australian Dollar (AUD) reaching 0.5610 (1.7820) on Brexit news. Chief Brexit negotiator Barnier briefed the EU last night that there has been no progress with the Irish Border following negotiations. Unless progress is made by Wednesday a draft deal signed this month at the EU summit looks unlikely. UK yearly CPI releases Wednesday and Retail Sales Thursday to possibly offer support back into the Pound with Australian unemployment Thursday the key driver for the AUD this week.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5576 0.5510 0.5610 0.5510 - 0.5610
GBP / AUD 1.7935 1.7820 1.8150 1.7827 - 1.8148

AUD/EURO (EURO/AUD)

The Australian Dollar (AUD) is aiming for a fifth straight week of gains over the Euro (EUR) with price moving higher off the weekly open to 0.6400 (1.5630) keeping the bullish run alive. Italian Budget issues have kept the Euro against the wall, this week is no different. Italy have until the end of today (Tuesday) to present their revised Budget proposal to the EU. Italy’s Picchi remains defiant, with massive fines laid out this doesn’t seem to bother him. Further declines are expected in the EUR with resistance at 0.6410 (1.5600). This level looks like a done deal with a possibility of extending the Aussie rally all the way back to June 2018 levels of 0.6535 (1.5300) unless we see positive EU data. This week’s Aussie employment figures Thursday should confirm an improving economy.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6383 0.6290 0.6425 0.6317 - 0.6404
EUR/AUD 1.5660 1.5570 1.5900 1.5615 - 1.5831

AUD/YEN

Risk markets are starting to diminish Tuesday morning in the Australian Dollar (AUD), Japanese Yen (JPY) pair as the Aussie eased back off last week’s high of 83.00 dropping a cent to trade at 81.90 Midweek Australian wage data and unemployment figures should offer the Aussie support if equity markets slide further and create further negativity towards the end of the week.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 81.45 80.40 83.00 81.49 - 83.04

AUD/CAD

The Australian Dollar (AUD) has come off its high of 0.9570 Friday easing back to 0.9505 in thin Monday trading. A sharp pullback in the price of Crude oil last week saw the CAD under pressure from the 0.9400 open, losing ground the fifth straight week in a row. This week’s Aussie Wage numbers and employment figures hold the main interest this week. As we said last week, we expected a reversal of sorts once Oil prices stabilised and risk sentiment deteriorates which looks to have started. 09470 holds support to the downside this week which looks vulnerable.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9485 0.9470 0.9570 039450 - 0.9568

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Market commentary:

Markets are still figuring out what it all means post US elections and Fed policy announcement. Initially the reaction has been mixed but with a general US Dollar up theme and risk on markets. We are still looking at Fed policy normalisation at a time where there is heaps of downside risks including global trade. Any downside to equity markets and sentiment from here will not bode well for risk associated products and could bring back topside failures in major currency pairs. With a US Holiday Monday celebrating veterans Day markets should ease into the week. The New Zealand Dollar was the standout performer last week with unemployment dropping to a 2008 low of 3.9% from the 4.4% markets were expecting. With risk factors this week expected to drive price action we could see the kiwi ease back towards last week’s open of 0.6650 levels.  EU and UK negotiators are close to a breakthrough with both sides aiming to get political approval on the Irish border backdrop. President Trump has upset fire besieged California when he tweeted about the mismanagement of forestland and threatened to cut federal funding to the state. Fires in southern California have killed more than two dozen people and destroyed over 6,500 buildings forcing the evacuation of over 250,000 people. The fires are the worst in California history with Trump expressing no sympathy for those caught in the fires, instead using the catastrophic event to criticise the state's environmental regulations. We have several key data releases on the economic docket but geopolitical news could influence shifts in currencies the most.

Australia

Positive economic data has supported the Australian Dollar recently, we think this should continue. Third quarter wage figures Wednesday is expected to show 0.6% growth according to markets with the employment figure on Thursday predicted to have an increase of 20,300 people added to the workforce. This week’s Italian Budget fallout could derail prospects of a risk on markets, this could have a detrimental effect on the Aussie Dollar sending it lower from the weekly open of 0.7230 versus the greenback. Global trade tariff speak between the US and China is expected to continue this week which could leave markets feeling uncomfortable and averse to risk, a double dose would see the Aussie feasibly see the Aussie below last week’s opening prices.

New Zealand

After incredible employment figures releases last week showing the unemployment rate dropped from 4.4% to 3.9% the lowest level since 2008 and rallying the Kiwi, we feel the currency looks well over bought in the current market. The NZD was the best performing currency last week after the news but topside momentum this week looks unrealistic. An Asian summit held in Singapore this week with the 10 members of the Association of Southeast Asian Nations plus six other Asia Pacific economies gets underway Tuesday and will focus on trade differences between China and USA with Mike Pence attending with President Trump passing on the event.  The RBNZ kept rates on hold at 1.75% with Adrian Orr saying they would keep rates steady through 2019 and into 2020. It’s a quiet week of data for the kiwi with just Business Manufacturing printing Friday. Offshore influences will drive the kiwi this week.

United States

President Trump has mentioned to sources he wants to replace Commerce Secretary Wilbur Ross by the end of the year. He wants Linda McMahon as his replacement and is also considering Ray Washburne. LInda Mcmahon is the wife of the WWE CEO Vince McMahon a long time mate of the President. The rumour is that the president is unhappy with Ross in the way he has negotiated the China tariffs. Last week’s US midterm elections were not the complete whitewash markets were expecting, what we have ended up with is a split between the upper and lower houses clearly making future political decisions more difficult to get over the line. The Federal Reserve as widely expected kept their benchmark interest rate unchanged Friday morning saying they would remain on track to hike rates until signs show of a slowdown in business and investment growth. US Producer Price index jumped 0.6% for the month of October the biggest increase in six years releasing much higher than the 0.2% expected. The university of Michigan business sentiment fell to 98.3 for November compared with 98 predicted. Observance of Veterans Day holiday Tuesday will see a slow beginning to the week with volumes low through to midweek when monthly CPI releases. Retail Sales and the Fed chairman Powell speaks Friday will also offer strong interest.

Europe

The second half of the week wasn't kind to the Euro with it giving back gains made versus the greenback after it pushed to 1.15, closing at 1.1370 and losing 1.7% against the New Zealand Dollar. German economic sentiment and GDP prints tonight the only data of significance this week on the economic docket. The main interest will the Italian Budget saga. Rome has dismissed an ultimatum by the EU warning that unless it changes its budget proposal they could face fines of 3.4 Billion Euro. This would be an unprecedented move which has never happened before but the populist government remains defiant and has rejected demands to revise the Budget. Picchi a politician in the right wing League party said the government expects "the first positive effect" of it massive spending plan to filter into the economies results by September 2019. He has said to the EU if the budget is not working - he would make measures to change it at a later date, somehow I don’t think this will wash.

United Kingdom

The Queen's Pound gave back gains over the second half of the week closing with a mixed bag. Suffering the fallout of the US election results and Fed policy decision the Pound relented to the demand of the US Dollar. Not that the election results screamed "buy the Dollar" it was more about relief. Brexit has shifted back towards “worry” with a Brexit deal far from being completed, but this is not really a surprise with recent developments. EU and UK negotiators are reportedly closer than we think to a breakthrough but they are still struggling with arrangements for the Irish border. This recent reality of events is fast leading to loss of confidence and disintegrating government unity along with negative public confidence in the entire Brexit policy. The UK has a welcome distraction Wednesday when yearly CPI releases. Friday we see Retail Sales. This week’s movement in the Pound will be very volatile.

Japan

Weaker equities have spurred on Japanese Yen buyers through the later stages of last week after US demand eased. Monday prices saw a lower Yen with the pair jumping to 114.00 but with markets turning risk averse buyers sought the Japanese Yen back as price travelled back to 113.60. Topside action through the 114.00 handle looks unlikely this week with risk factors firmly evident. A combination of key headlines, US Trade tensions, Brexit uncertainty and a standoff between Rome and the EU regarding the Italian Budget constraints have starting to dent investor appetite and could be the theme over the remainder of the week. With the absence of any decent economic data to publish this week in Japan, US related data will influence the pairs momentum.

Canada

The Canadian Dollar was the worst performing currency last week against the major currencies - versus the NZD it lost nearly 2% in value. With weak economic data printing recently despite a hike in the Canadian cash rate together with soft Crude Oil prices the CAD has struggled. Against the greenback we have seen six straight weeks of declines to 1.3220. Saudi Arabia has hinted they will lower production of crude oil by 500,000 barrels in December based on a seasonal lack of demand. This could boost prices from the current 60.19 multi month low this week and put a floor of further depreciating prices. A Canada holiday today with remembrance day will see thin start to markets, later in the week we see monthly Manufacturing Sales for September.

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