Good news emerged from the G20 weekend meeting; NZD has continued its bullish run higher to reach 0.6930; NZD rallied off the weekly open of 0.9370 AUD to reach recent resistance of 0.9435 during Monday’s trading

By Neven Fisher*:

Good news emerged from the G20 weekend meeting, with U.S. President Trump and his Chinese counterpart Xi Jinping agreeing to hit the pause button on the introduction of new tariffs and intensify their trade talks. This saw US equity markets jump higher with the S&P 500 up over 1%, while the Aussie, New Zealand dollar and the currencies of South Africa, Turkey and Mexico all rose. Shares from Sydney to Seoul gained and the 10-year Treasury yield jumped back above 3%. The greenback traded lower against most of its large developed-market counterparts. Trump and Xi have now agreed to halt any new tariffs for 90 days as the countries continue negotiations. The U.S. had been scheduled to push ahead on Jan. 1 with increased tariffs on $200 billion worth of Chinese goods. Although far from resolved, the easing in tensions between the leaders of the world’s largest economies goes some way to assuage sentiment that’s been weighed down by concerns that the trade war is having a damaging effect on global economic growth. Also adding to a more positive tone were last week’s dovish comments from the Federal Reserve around interest rates approaching more neutral levels which helped propel a revival in risk taking. We expect this more “risk-on” approach to be the prevalent theme over the coming week for both equity and currency markets. Market focus will also be on US data released throughout the week, culminating in the Non-farm payroll data on Friday, the last for the year.

Major Announcements last week:

  • NZ Trade Balance prints down at 1.295B compared to 850M expected.
  • US quarterly prelim GDP is down at 3.5% after 3.6% forecast.
  • Fed Chair Powell throws up a dovish outlook to 2019 fed hikes
  • Canadian GDP comes in weak at -0.1% from 0.1% expected
  • G20 summit was highlighted by Trump and China agreeing on a temporary trade tariff truce

NZD/USD

The New Zealand Dollar (NZD) has continued its bullish run higher to reach 0.6930 against the less favorable greenback. The kiwi has outperformed its rivals again in the past 7 days as risk appetite returned. Risk trades improved with Trump and China agreeing on a truce of sorts at the G20, this was seen as a positive step towards an agreement with the truce on 25% tariffs in January set to be halted 90 days while further meetings take place. US ISM Manufacturing printed at 59.3, up on the 57.5 markets were expecting, showing expansion in the sector in November with the overall economy growing for the 115th consecutive month. We have a lack of local data on the docket this week so direction will be priced by offshore data such as US Non-Farm Payroll and US employment figures later in the week. Key physiological resistance is 0.7000 which is fast approaching. With the Fed now potentially pulling back their rate hiking plan next year we think the kiwi could extend much higher in the coming few months.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6931 0.6750 0.7000 0.6771 - 0.6939

NZD/AUD (AUD/NZD)

The New Zealand Dollar (NZD) rallied off the weekly open of 0.9370 (1.0670) to reach recent resistance of 0.9435 (1.0600) during Monday’s trading. Australian Building approvals missed the mark for the fourth straight month when figures represented further declines in property which is now down 9.5% since July 2017. Quarterly operating profits by businesses was also down at -1.9% from the expected 2.9%. Today’s RBA cash rate announcement is widely expected to remain the same at 1.50% with further rhetoric suggesting rates will stay as they are for some time yet. Buyers of AUD should consider at current levels as we trade currently at the top of the recent band around 0.9410 (1.0683). A hawkish statement by the RBA governor could shift price action back towards 0.9300 (1.0755)

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9417 0.9354 0.9440 0.9361 - 0.9425
AUD / NZD 1.0607 1.0590 1.0690 1.0610 - 1.0683

NZD/GBP (GBP/NZD)

As the December 11 deadline looms for the Brexit deal the British Pound (GBP) has lost further ground during the later stages of last week and Monday against the New Zealand Dollar (NZD) travelling through to 0.5460 (1.8320). Predominantly negative headlines continued to drag the Pound to levels not seen since September 2017. Tonight’s UK construction figures holds the most interest on this week’s docket with a quiet week of data for NZ. We think the cross will continue to track higher with a possible retest of 0.5760 (1.7360) July 2017 levels.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5448 0.5356 0.5525 0.5307 - 0.5457
GBP / NZD 1.8355 1.8100 1.8670 1.8325 - 1.8843

 NZD/CAD

The New Zealand dollar (NZD) continues to remain well supported against the Canadian dollar (CAD) helped on Monday by positive risk sentiment in the wake of the G20 meeting on the weekend. Trade tensions between the US and China seemed to abate somewhat and the NZD took full advantage of the fact in the early stages of this week. That being said, the entire NZDCAD rally, which started back in early October from around 0.8325, is starting to look a little long in the tooth, and there are signs that momentum is waning. Certainly, some positive developments in the price of crude oil, and in particular Canadian crude oil, over recent days suggest that the pain for the CAD may be coming to an end. That’s not to say we can’t see higher NZDCAD prices yet, but I suspect the market is going to really struggle on any attempt toward the 0.9200 area, and a significant correction lower could easily develop over the coming weeks.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9146 0.8930 0.9200 0.8977 - 0.9161

NZD/EURO (EURO/NZD)

The New Zealand Dollar (NZD has outperformed the Euro (EUR) and looks to retest the 0.6160 (1.6230) resistance level of August 2017. Currently trading around the 0.6105 (1.6380) mark the Euro lost early ground on Monday’s open after risk sentiment improved over the weekend stemming from positive news out of the G20 meeting in Argentina. The Italian Budget seems to be making progress with the concrete 2019 budget of 2.4 Billion now looking like to could shift to 2.0- 2.2 Billion with the EU putting pressure on them to lower it. If this doesn’t happen and the Italians remain defiant in retaining their budget at or around 2.4B the EU could step in as early as December 20th to instigate disciplinary action for breaking the EU fiscal rules. ECB’s Draghi speaks on Wednesday.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.6106 0.5950 0.6157 0.5982 - 0.6119
EUR/NZD 1.6372 1.6240 1.6800 1.6342 - 1.6717

NZD/YEN

The New Zealand dollar (NZD) has made solid gains against the Japanese Yen (JPY) over the past week, in an extension of the broader rally that began in late October. The NZD jumped higher on Monday in the wake of some positive trade talk at the G20 over the weekend and that helped the NZDJPY trade to a high so far of 78.80. At this stage there is little to suggest the rally has run its course, and as such the risks remain skewed to the topside. We could easily see the pair make gains toward the 79.50 area over the coming days.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 78.70 77.60 79.55 76.91 - 78.80

AUD/USD

The Australian Dollar (AUD) has extended its recovery from the multi month lows against the greenback over weekend news of a US/China trade truce fuelled risk buyer pressures boosting the Aussie to 0.7395. A retest of resistance of 0.7450 seems within reach over the coming week as risk on sentiment continues. Today’s RBA cash rate announcement will be keenly watched to govern further direction heading into Christmas period. The RBA are expected to leave the cash rate unchanged at 1.50% based on early comments suggesting they would remain low for some time. We suggest the current updraft will continue as long as offshore macro themes don’t disappoint and equity markets bulls continue.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7354 0.7200 0.7400 0.7220 - 0.7393

AUD/GBP (GBP/AUD) 

The prospects of any meaningful upside for the British Pound (GBP) over the Australian Dollar (AUD) this week looks bleak with the Pound expected to carry on with its downside bias. Markets are waiting for December 11 when the UK parliament votes of Theresa may’s deal. In the meantime the pair trades up at 0.5780 (1.7310) after being at 0.5815 (1.7200) midday Monday. These are January 2018 highs which look like they could turn into yearly highs if the RBA statement releases well today. The RBA is due to announce their cash rate this afternoon which is widely expected to remain the same at 1.50%, anything hawkish in the statement won’t be favorable for the Pound. Aussie Retail Sales releases Thursday

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5780 0.5715 0.5815 0.5653 - 0.5811
GBP / AUD 1.7301 1.7200 1.7500 1.7210 - 1.7691

AUD/EURO (EURO/AUD)

It’s one way traffic with the Australian Dollar (AUD) extending its hold over the Euro (EUR) after risk associated products received a boost of confidence over the weekend, the pair travelling to 0.6520 (1.5340) as Trump and China agree on a trade tariff truce. The Italian Budget still weighs heavily on the Euro with threats of large fines still threatening to derail the Italian economy if an agreement is not met to resolve the massive budget deficit of 2.4B over 2019. The Italians could still face disciplinary action by the EU if the deficit forecast is not reduced significantly. Key interest this week is with today’s RBA cash announcement which is widely expected to remain unchanged at 1.50% for the 28th consecutive month. We have seen no hikes since November 2010 with the RBA signalling they are not likely to change for some time. Watch for Aussie Retail Sales later in the week as the release has scope to shift price if it doesn’t print at the expected 0.3%

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6479 0.6340 0.6523 0.6381 - 0.6516
EUR/AUD 1.5434 1.5330 1.5780 1.5347 - 1.5671

AUD/YEN

The Australian dollar has benefited from some encouraging signs in regard to global trade after US and China talks during the weekends G20 seemed to ease tensions, at least for now. The AUD jumped higher on Monday driving the AUDJPY cross to a 83.89 high so far. We do have the RBA meeting to digest this afternoon to digest, and it could cause some volatility, but no one is expecting any significant change in stance from the central bank.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 83.54 81.20 84.40 81.93 - 83.89

AUD/CAD

The Canadian Dollar (CAD) improved against the Australian Dollar (AUD) to 0.9700 Monday gaining 70 points on the open after Crude Oil prices improved off sub 50.00 levels to bounce back to 53.20. Production numbers for 2018 are ending much higher than previously thought and outputs forecast for 2019 are likely to be revised upwards in the coming months. The RBA cash rate announcement this afternoon is not likely to throw up any surprises with rats expected to remain at 1.50% for some time. The current price rally is nearing long term resistance of 0.9220, buyers should consider current  levels above 0.9100

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9705 0.9520 0.9760 0.9579 - 0.9774

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Market commentary:

Good news emerged from the G20 weekend meeting, with U.S. President Trump and his Chinese counterpart Xi Jinping agreeing to hit the pause button on the introduction of new tariffs and intensify their trade talks. This saw US equity markets jump higher with the S&P 500 up over 1%, while the Aussie, New Zealand dollar and the currencies of South Africa, Turkey and Mexico all rose. Shares from Sydney to Seoul gained and the 10-year Treasury yield jumped back above 3%. The greenback traded lower against most of its large developed-market counterparts. Trump and Xi have now agreed to halt any new tariffs for 90 days as the countries continue negotiations. The U.S. had been scheduled to push ahead on Jan. 1 with increased tariffs on $200 billion worth of Chinese goods. Although far from resolved, the easing in tensions between the leaders of the world’s largest economies goes some way to assuage sentiment that’s been weighed down by concerns that the trade war is having a damaging effect on global economic growth. Also adding to a more positive tone were last week’s dovish comments from the Federal Reserve around interest rates approaching more neutral levels which helped propel a revival in risk taking. We expect this more “risk-on” approach to be the prevalent theme over the coming week for both equity and currency markets. Market focus will also be on US data released throughout the week, culminating in the Non-farm payroll data on Friday, the last for the year.

Australia

The weekend truce between China and Trump on trade tariffs has suited the Australian Dollar perfectly with the currency jumping higher off the open to 0.7400. The news indicated the US President and Xi Jinping have agreed on a 90 day period without tariffs to further discuss trade issues. Both leaders have called the meeting a success and although there will be some differences they won’t be able to agree on. This should keep equities and risk currencies like the Aussie ahead of the game for now. Australian Building Approvals disappointed with a reading of -1.5% compared to -1.4% which wasn’t a whole lot different but it’s the continuation of terrible data accumulating over the past 4 months which has pundits worried. The Sydney housing downturn is 0.1% from being the worst run since 1989 with the annual decline now at 8.1%. Today’s Current Account for October should reflect a better number than September around the -10.2B. The RBA Cash Rate is announced later today with no change from the 1.50% expected. Retail Sales and GDP print later in the week which hold significant weighting on how the economy is tracking leading into Xmas.

New Zealand

The New Zealand dollar is out of the blocks for the week on a firmer tone, as the economy continues to hold steady in spite of dairy prices continuing to drift lower. Over the past few weeks we have seen a raft of New Zealand data, some of it mixed, but the overall theme remains positive with vacancies in the labour market at an all time low and confidence levels now starting to recover from the winter doldrums. Later tonight there will be another Global Dairy auction with prices expected to be higher by around 2% as per current futures market pricing, however this market has not always been an accurate predictor of price direction in the past. The New Zealand dollar has opened firmer against the AUD this morning trading over the 0.9400 level and could push on to resistance at 0.9460 depending on this afternoons RBA announcement...no rate change is expected. The continued risk-on tone has seen the NZD hold above the 0.6900 level against the USD, currently at 0.6920 with resistance at the 0.6950 mark we expect current levels to hold for most of this week.

United States

US President Trump agreed on a truce of sorts over the weekend at the G20 summit in Argentina when he agreed to suspend the 1 January 2019 tariff shift from 10% to 25% on 200 Billion worth of Chinese products between China and the US. The 3 months grace period was offered so an agreement can be negotiated with further talks to take place, but Trump reiterated if nothing can be agreed to his satisfaction the new tariff will be implemented. In a moment of controversy, the president was supposed to stay for the group photo ending the G20 event but walked off stage off camera still miked up and said “get me out of here”. President Trump has indicated to congress he wants to formally terminate the North American Trade Agreement (NAFTA), the new agreement USMCA will come into effect after the new agreement is signed off in in the next 6 months. The US Dollar was stronger over the week compared to the Yen up 0.5% but weaker than the Aussie Dollar and the New Zealand Dollar mainly due to risk associated currencies closing the week in positive territory with US equities trading higher- the S & P, DOW and Nasdaq all up nearly 1% on Friday’s trading. Interest this week lies with several Fed speakers Tuesday through Friday and our monthly Non-Farm Payroll figures Friday.

Europe

The Euro regained some of Fridays losses Monday after it gaped higher on risk sentiment to 1.1350 after being down towards 1.1300 against the greenback. The G20 summit has ended without too much argy bargy over the weekend pushing risk associated products higher as markets breathed a sigh of relief. President Trump has agreed to halt the additional the 15% tariff on Chinese goods on 1 January 2019 for 3 months to allow additional negotiations and talks to continue with US and Chinese officials. The Italian Budget debacle is still a hot topic in Euroland. Italy’s Prime Minister Conte met with EU’s Jean Claude Juncker over the weekend with rhetoric around both parties working to come to an agreement. It’s unknown yet if the EU will need to implement heavy fines on the Italians if their budget is not altered to their satisfaction. It’s a quiet week on the European calendar this week with only Draghi speaking Wednesday along with the twice yearly OPEC meeting Friday.

United Kingdom

After nearly two years of negotiations the EU have finally given the go ahead with the divorce of the UK Sunday during a meeting in Brussels. After less than an hour of discussions the EU has given the thumbs up for Theresa May to continue. The Problem now lies with her ability to convince her parliament to support the agreement which is reportedly slim. A no deal Brexit could see the Pound diving to unknown territory, worse than the global financial crisis and the weakest level since world war two. The Bank of England (BOE) has publicly said the British Pound could deteriorate in such a crisis by more than 25% in value. It wouldn't end there - UK Housing could fall by a third and the UK economy could weaken by 8-10%. This assumption is clearly a worse case scenario based on a "disorderly Brexit". This is an event where the UK crashes out of the EU with no deal and nothing to show. The withdrawal deal now faces a yes or no vote in the British parliament on December 11. Over the weekend PM Theresa May ran into trouble with the government at risk of being declared in contempt as a dispute over publication of official legal advice on the divorce deal. Boris Johnson is leading calls for the full legal disclosure on the Brexit deal to be published - analysts are concerned that this could end the deal in a ball of flames. This week on the economic calendar we have UK Manufacturing data along with the (BOE) Bank of England Carney speaking.

Japan

Japan released a raft of economic data on Friday which painted a mixed picture of the current economic situation. Tokyo Core Inflation was unchanged at 1.0%, a touch below the 1.1% expectation, while the unemployment rate ticked up to 2.4% from 2.3% prior. On the positive side we saw stronger readings for Industrial Production and retail Sales, which both printed well above expectation. We saw further mixed data yesterday with Capital Spending coming in well below forecast, but Manufacturing PMI increasing a touch. I think it’s fair to say the Bank of Japan wouldn’t be overly happy with the releases, but they are nowhere near bad enough to see the bank reassess its current policy settings.

Canada

The Canadian dollar has struggled over recent weeks thanks to declining oil prices, but there may be a light at the end of the tunnel for the beleaguered currency.  Oil production cuts from Alberta in Canada boosted the price of Canadian oil overnight, and there is speculation that this weekend’s OPEC meeting could see production cuts from OPEC members of around 1.1 million barrels per day. Anything that supports the price of oil, is going to be positive for the CAD at this stage. In terms of Canadian economic data, at the end of last week we saw a mixed bag of numbers with monthly GDP disappointing at -0.1%, but better than forecast outcomes for the Current Account and Raw Material Price Index. This week should prove interesting with the Bank of Canada Rate Statement out on Wednesday night, and employment data on Friday night.

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USD 
NZD
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Source: CoinDesk

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