Markets closed in the red Friday in a risk off mood; NZD momentarily recovered towards 0.6800 but failed to make any headway past 0.6890 at the close; NZD has lost ground against its Australian cousin

Markets closed in the red Friday in a risk off mood; NZD momentarily recovered towards 0.6800 but failed to make any headway past 0.6890 at the close; NZD has lost ground against its Australian cousin

By Neven Fisher*:

Markets closed in the red Friday in a risk off mood. Equities fall over 2% with European stocks down also over 0.5%. US Equities have traded back to April 2018 levels after global data continues to disappoint. Chinese Industrial output and Retail Sales came in light sending risk associated currencies lower late Friday followed by weak Manufacturing data out of France and Germany. The NZD momentarily recovered towards 0.6800 but failed to make any headway past 0.6890 at the close. The NZD the weakest traded currency over the past few days along with the British Pound, the kiwi down 1% against the greenback and the Pound around 1.10%. It’s not surprising we have seen investors selling risk currencies and equities as global trade tensions heighten. China has already purchased 500,000 tons of US Soybeans as part of the ongoing 90 days truce agreement and will start to buy American corn soon. China has confirmed they will also remove the tariff it has on vehicle imports the US. North Korea have expressed their disbelief at the recent US sanctions accusing the US state department of taking last year’s progress back to a hostile situation. The US said they would seize the assets of Mr Kim's main man Choe Ryong-hae, Jong Khong-thaek and Pak Kwang-ho for abusing human rights in North Korea which included, killings, torture, rape and sexual violence. The North Korean statement included: "maximum pressure" would be the United States "greatest miscalculation". The question now is - did President Trump really achieve anything in the June meeting? This week’s Fed meeting the main focus of the week has the potential to be exciting with several market analysts suggesting they will not raise rates to 2.5% but do it next year instead. This week we will see much assessment of what path the Fed will follow over the next year and beyond. This week key local mover will be quarterly GDP with numbers expecting to print around the 0.6% area in line with recent growth.

Major Announcements last week:

  • US PPI 0.1% vs 0.0% expected
  • UK Average Earnings Index 3.3% vs 3.0% expected
  • US CPI 0.0% as expected
  • ECB leaves rates unchanged at 0.0%
  • US Retail Sales 0.2% vs 0.1% expected

NZD/USD

The New Zealand dollar (NZD) has lost ground against the United States dollar (USD) this week, with most of the weakness coming in a sharp burst of activity on Friday morning. Soft US equities and broad risk off tone have weighed on the local currency pressuring it to a low of 0.6777 so far. For now, the risks remain skewed to the downside and we may see the NZDUSD test support around the 0.6720 area over the coming days. The key to direction over the Christmas period will likely come from a couple of important releases on Thursday morning. First up is the US Fed interest rate decision, and then a few hour later we get New Zealand GDP data.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6804 06780 0.6900 0.6777 - 0.6901

NZD/AUD (AUD/NZD)

There hasn’t been much in the way of key data released from either New Zealand or Australia over the past week, although that will change in the coming days with key Australian employment and New Zealand GDP figures set for release on Thursday. The NZD has lost ground against its Australian cousin over the past week, suffering during periods of broad risk aversion. The pair traded down to a low of 0.9446 (1.0587) during Friday’s session before recovering back toward 0.9480 where it’s broadly held since. While we still believe this cross should be trading lower based on fundamentals, it’s too early to say if the broad rally that’s been in play for much of the past 2 months has finally peaked. Thursday’s data releases may well be the deciding factor in determining that.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9478 0.9355 0.9580 0.9446 - 0.9568
AUD / NZD 1.0543 1.0440 1.0690 1.0451 - 1.0587

NZD/GBP (GBP/NZD)

The New Zealand Dollar (NZD) returned to its recent lows of 0.5400 (1.8550) against the British Pound in what looks to have come from positive UK news around Brexit. It’s just 14 weeks until the UK leave the EU. Theresa May has set a date of 14 January 2019 last night saying to parliament members, when they have the vote members will need to reflect carefully on what’s in the best interest for the country. It’s not a perfect deal but a compromise she went on to say. The cross sits just below the top of the recent bullish trend line suggesting momentum could edge back towards 0.5500 (1.8200) this week if UK data doesn’t print well. Both countries are expecting GDP results to publish but the main event will be the Bank of England Cash Rate release which is expected to draw a vote of 0-9 in favour of unchanged

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5391 0.5390 0.5520 0.5377 - 0.5517
GBP / NZD 1.8550 1.8120 1.8630 1.8127 - 1.8598

 NZD/CAD

The New Zealand Dollar (NZD) has reversed some of last week’s losses retracing off the low of 0.9080 to 0.9125 this morning against the Canadian Dollar (CAD) with crude oil falling back 1.6% holding just above 50.00. Foreign investments in Canadian Securities releases at 4B for October down from the 7.8B in September and lower than the 6.2B markets were expecting, the data dragged on the CAD. Over the past week the CAD has picked up gains over the NZD coming off the high of 0.9250 taking a breather from the bullish momentum we have seen since late September. This week’s main interest is with Canadian monthly CPI and NZ quarterly GDP Thursday with Canadian monthly GDP Friday.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9126 0.9080 0.9230 0.9077 - 0.9250

NZD/EURO (EURO/NZD)

Momentum in the Euro (EUR) has extended over from last week with the New Zealand Dollar (NZD) softening on worse than expected Chinese data and risk sentiment. The ECB gave a dovish statement late last week which saw the Euro fall before AUD strength developed based on worse than expected Chinese data. The Eurozone inflation rate is down at 1.9% (2.0% expected) for the year to November 2018. The lowest rates were recorded in Denmark at 0.7% with Estonia, Hungary and Romania all at 3.2%. So out of the 25 member states all but two fell. NZ quarterly GDP is the only tier one event on the docket this week (Thursday) with expectations of 0.6% growth down from 1.0% in the September figure. We think a retest of  0.5880- 0.6000 (1.6720) is possible with the NZD to soften further.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5996 0.5640 0.5780 1.6425 - 1.6727
EUR/NZD 1.6677 1.7290 1.7730 0.5978 - 0.6088

NZD/YEN

The New Zealand Dollar (NZD) ran out of steam around the 77.80 Friday against the Japanese Yen (JPY) after markets turned risk averse on poor Chinese data. Falling to close the week around 77.00 Monday’s open has continued to see nervous markets dictating flows lower to 76.70. Renewed downside momentum in US equities has not helped the kiwi with the Nasdaq falling a further 1% continuing Fridays 2.0%. With markets favouring a risk off tone this week we could see further softening in the pair and a retest of 76.30 support.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 76.77 76.20 78.30 76.67 - 78.29

AUD/USD

The Australian dollar (AUD) saw some sharp losses against the United States dollar (USD) in the latter stages of last week. The AUD broke below minor support around 0.7220 and quickly traded down to 0.7180. After a small bounce the AUD was pushed lower again thanks to some soft Chinese data releases. This saw the currency eventually trade to a low of 0.7152 on Friday evening. It’s been very quiet start to this week with the AUD drifting sideways around the 0.7175 area. There is however plenty of potential for some further volatility in the coming days with the US Fed interest rate decision released early Thursday morning and then Australian employment data a few hours later. Those two releases may well dictate the tone for the AUD over the Christmas period.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7179 0.7150 0.7250 0.7151 - 0.7246

AUD/GBP (GBP/AUD) 

In a game of two halves last week we saw the British Pound (GBP) retrace off the high of 0.5780 (1.7300) back to the open price of 0.5700 (1.7550) and extend the momentum towards 0.5680 (1.7600) Tuesday. It’s just 14 weeks until the UK leave the EU. Theresa May has set a date of 14 January 2019 last night saying to parliament members- when they have the vote members will need to reflect carefully on what’s in the best interest for the country. It’s not a perfect deal but a compromise she went on to say. We have a huge amount of data to publish for the pair this week which will make the cross vulnerable to extra volatility heading into xmas. UK GDP and Retail Sales will draw interest but the main event will be the Bank of England Cash rate release which is expected to show a vote of 0-9 in favour of a remain at the current 0.75%. It’s tough to gauge this week’s direction with so much happening. If data presents well we view a retest of 0.5620 (1.7800) support line from late November price action.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5689 0.5630 0.5780 0.5675 - 0.5783
GBP / AUD 1.7577 1.7300 1.7750 1.7292 - 1.7620

AUD/EURO (EURO/AUD)

We have seen some choppy price action for the Australian dollar / Euro cross rate (AUD/EUR) over the past week. Both currencies have seen periods of pressure, but ultimately it’s the AUD that has underperformed. Soft Chinese data late last week weighed on the AUD and it’s help drive the pair to a low of 0.6320 (1.5822), after touching highs of 0.6380 (1.5673) earlier in the week. The EUR has also struggled, pressured by a dovish ECB statement and further confirmation that the Eurozone economy is slowing down.  Further volatility is likely in the coming days, with key Australian employment data set for release on Thursday. That data may well set the tone for the AUD over the Christmas period

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6324 0.6300 0.6380 0.6296 - 0.6516
EUR/AUD 1.5812 1.5670 1.5900 1.5347 - 1.5884

AUD/YEN

The Australian Dollar (AUD) has fallen sharply on the weekly open against the Japanese Yen (JPY) to 80.90 levels as markets have continued Friday’s risk off tone. Worse than expected Chinese data Friday and a looming expectation the the US Fed could deviate from their more hawkish theme in 2019 is weighing on markets. Thursday holds key interest with Australian employment to release as well as the Bank of Japan (BoJ) cash rate release. The Bank of Japan will continue with their ultra stimulative monetary setting but with recent global trade concerns they are expected to sing from the same song sheet as other central banks warning of threats to ongoing growth. Aussie employment data will also release later in the week. We expect price to drift below the 80.00 level.

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 80.97 80.70 82.40 80.83 - 82.20

AUD/CAD

The Australian Dollar (AUD) retraced back to its weekly open last week of 0.9580 after risk aversion and poor Chinese data. The Canadian Dollar (CAD) depreciated again Monday on sliding crude oil prices once have again spoiling any CAD momentum, dropping a further 1.6% to hold just above 50.00 support, with price reaching 0.9630. A slew of key Canadian and NZ data will release this week starting with CAD CPI Thursday and NZ GDP followed by Canadian monthly GDP and Retail Sales Friday.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9627 0.9570 0.9670 0.9572 - 0.9677

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Market commentary:

Markets closed in the red Friday in a risk off mood. Equities fall over 2% with European stocks down also over 0.5%. US Equities have traded back to April 2018 levels after global data continues to disappoint. Chinese Industrial output and Retail Sales came in light sending risk associated currencies lower late Friday followed by weak Manufacturing data out of France and Germany. The NZD momentarily recovered towards 0.6800 but failed to make any headway past 0.6890 at the close. The NZD the weakest traded currency over the past few days along with the British Pound, the kiwi down 1% against the greenback and the Pound around 1.10%. It’s not surprising we have seen investors selling risk currencies and equities as global trade tensions heighten. China has already purchased 500,000 tons of US Soybeans as part of the ongoing 90 days truce agreement and will start to buy American corn soon. China has confirmed they will also remove the tariff it has on vehicle imports the US. North Korea have expressed their disbelief at the recent US sanctions accusing the US state department of taking last year’s progress back to a hostile situation. The US said they would seize the assets of Mr Kim's main man Choe Ryong-hae, Jong Khong-thaek and Pak Kwang-ho for abusing human rights in North Korea which included, killings, torture, rape and sexual violence. The North Korean statement included: "maximum pressure" would be the United States "greatest miscalculation". The question now is - did President Trump really achieve anything in the June meeting? This week’s Fed meeting the main focus of the week has the potential to be exciting with several market analysts suggesting they will not raise rates to 2.5% but do it next year instead. This week we will see much assessment of what path the Fed will follow over the next year and beyond. This week key local mover will be quarterly GDP with numbers expecting to print around the 0.6% area in line with recent growth.

Australia

Although the Australian Dollar has been down over the last week against the US Dollar it has predominantly outperformed all other major currencies. Flatlining earlier in the week we saw a little movement towards the weekly close with risk aversion coming into play. Falling house prices continue to be occupying headlines with the start of banks tightening up on credit lending policy this could lead to further softening of prices well in to 2019. Economic data out of China late Friday dropped the Aussie below key support levels after industrial production and Retail Sales printed softer. Global economic uncertainty could continue to not only add volatility to the AUD this week but weigh further on any upside momentum. Later in the week key data will come from employment figures including a updated unemployment rate.

New Zealand

The New Zealand Dollar has traded down in the last week, lower against the US Dollar by 1.0% and remains broadly confined to recent ranges against the crosses. A risk off tone developed in the later stages of last week’s NY session with US equities coming off over 2% after global trade risks linger on. Things were starting to look good midweek in equities and risk associated currencies generally, but with fears of a trade war back on the agenda risk appetite turned markets pear shaped with weak Chinese and EU data re surfacing concerns of slowing economic growth. This weeks Fed monetary policy meeting will give us more clues on the 2019 tightening plan, or lack of. The Fed will raise rates to 2.50% Thursday but some market makers are suggesting they won’t hike again in 2019. Jerome Powell said recently the Fed was close to its so called "neutral" rate, after previously saying they were a long way from neutral. This week at home we have quarterly GDP which is forecast to be 0.6% possibly boosting the kiwi into year end.

United States

The Big Dollar finished the week on top after US Equities retraced lower off midweek highs. The DOW, Nasdaq and S&P all closed lower by around 2.0% creating a selloff in risk currencies as buyers purchased the safe haven US Dollar. Core Retail Sales for November published slightly better than the 0.1% expected at 0.2% boosting the US Dollar. China data disappointed though with industrial production and retail sales quickly bringing back risk averse sentiment to an already nervous market. The Federal Reserve will be the main attraction this week as speculation runs rife the US central bank could signal slowing down the 2019 plan to hike rates. Since 2015 the fed have raised rates 8 times from practically nil to where they are now at 2.25% with 0.25% expected his week. Experts fear that by raising to fast it may trigger an economic slowdown or even worse, a recession. Wild equity market swings are not making things easier. US inflation is close to the 2% target, at the latest CPI reading inflation was just roughly 2.2% over the last year.

Europe

The Euro lost its momentum from the previous week dropping from 1.1440 to 1.1270 against the US Dollar as risk market took hold late during the US session Friday. US equities led the charge lower renting ove 2.0% as Chinese data disappointed and US Retail Sales didn't. German and French manufacturing data released softer than expected reinforcing recent consensus that the economic slowdown has arrived in the Eurozone. The EUR began to drop Thursday after a dovish ECB which anticipates economic growth will slow next year and inflation will remain below 2.0% The business activity boosted the decline in the EUR when the index came in at the lowest level in over four years. On the economic docket this week is tonight's German Business Climate which should reflect a slowing German economy.

United Kingdom

The Big Dollar finished the week on top after US Equities retraced lower off midweek highs. The DOW, Nasdaq and S&P all closed lower by around 2.0% creating a selloff in risk currencies as buyers purchased the safe haven US Dollar. Core Retail Sales for November published slightly better than the 0.1% expected at 0.2% boosting the US Dollar. China data disappointed though with industrial production and retail sales quickly bringing back risk averse sentiment to an already nervous market. The Federal Reserve will be the main attraction this week as speculation runs rife the US central bank could signal slowing down the 2019 plan to hike rates. Since 2015 the fed have raised rates 8 times from practically nil to where they are now at 2.25% with 0.25% expected his week. Experts fear that by raising to fast it may trigger an economic slowdown or even worse, a recession. Wild equity market swings are not making things easier. US inflation is close to the 2% target, at the latest CPI reading inflation was just roughly 2.2% over the last year.

Japan

The Japanese Yen lost ground against the US Dollar into the weekly close on US based strength. Weak Chinese data unfavourably sending markets into a risk averse mood, the Yen picking up the safe haven buys. Negative sentiment conditions have rolled over into this week with the Yen back at 112.80 after being at 113.70. Soft US data with NAHB Housing market Index fell four points to 56 after markets were expecting 61, alongside this data was global growth risks which have created nervous conditions. Markets are now turning it’s attention to the Fed Funds Rate later in the week along with the Bank of Japan (BoJ) cash rate announcement. The Bank of Japan will continue with their ultra simulative monetary setting but with recent global trade concerns they will reiterate comments by other central banks with ongoing threats to growth.

Canada

The Canadian Dollar remains under massive pressures based on several weeks of huge Crude Oil declines. The oil price dipped lower overnight down 1.8% to trade back just above 50.00 support at 50.32. I am not sure you can call this stable yet but the resent falls have weighed on the Loonie bigtime with price action against the greenback coming from 1.2800 in September to trade over 1.3400 this morning. In 2019 OECD inventories are expected to rise reaching 3.0B barrels late in the year with projections reaching more than 88M barrels more than the end of 2018. OPEC have agreed to cut production by 800,000 barrels for the first six months of 2019 I am not sure this will be enough to stop a price fall to possibly $40.00 pb if we correlate this with oversupply. If this happens we would almost certainly see the USD/CAD price travel into multi year highs towards 1.4000. This week on the economic calendar we have monthly CPI and Retail Sales.

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USD 
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Source: CoinDesk

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