Major US indices have closed the week in negative territory; USD has had its best week in over six months; NZD has been the poorest performing currency over the past week next to the AUD

By Neven Fisher*:

Major US indices have closed the week in negative territory after coming in lower Friday for the third straight day. The Nasdaq, DOW and S&P have posted the first loss in seven weeks based on a risk averse tone which has developed. With reports surfacing that the US/China trade negotiations may be delayed a while past the 2nd of March deadline for tariffs. Tariffs will go from the current 10% to 25% on this date with trade negotiator Robert Lighthizer saying China best hurry to speed up discussions. The US Dollar has had its best week in over six months with the US Index at 96.66 posting gains of over 1% on its rivals with over 2.2% on the Australian Dollar. The last time the big dollar made gains of this size was in August last year. The safe haven US Dollar really coming into play with investors preferring to stay in USD based on weakening global economy. Crude oil has a choppy week trading between 55.25 and 51.75 losing around 5% on global concerns. Recently Oil has had some support with OPEC supply cuts and sanctions over Venezuela. The New Zealand Dollar has been the poorest performing currency over the past week next to the Aussie falling against the major's down 2.19% against the greenback from 0.6900 to close around 0.6742. Monday has seen the kiwi pick up early week support but with the RBNZ Cash Rate announcement due to release at the new time of Wednesday 2.00pm trading until then could be subdued. With recent Reserve Bank of Australia and Bank of England downwardly revised 2019 growth forecasts we are expecting more of the same from Adrian Orr in his statement to gauge direction and tone for 2019

Major Announcements last week:

  • Chinese New Year
  • Aussie Retail Sales prints down at -0.4% after 0.0% expected
  • RBA comments cast doubts over AUD 
  • NZ Jobs data sinks the kiwi after data dissapoints
  • Bank of England leave the banchmark cash rate unchanged at 0.75%
  • Canadian Jobs data releases well above 8k at 66k added to the workforce 

NZD/USD

The New Zealand Dollar (NZD) is trading at a low of 0.6730 against the US Dollar (USD) as recent NZD stability has stalled over the past week. This week’s RBNZ statement on Wednesday is firmly the focus, we should see no change to the current 1.75% but the tone of Adrian Orr’s monetary statement will be dissected carefully by investors to confirm recent rhetoric around downside risks and how offshore trade related uncertainties will impact the Kiwi. US/ China trade talks will resume later this week in Beijing aimed at resolving the trade war as it continues to threaten global economic growth. Risk appetite will be key to any upside momentum in the kiwi.

DIRECT FX Current level Support Resistance Last wk range
NZD/USD 0.6730 0.6700 0.6800 0.6726 - 0.6904

NZD/AUD (AUD/NZD)

After bouncing off 0.9615 (1.0400) last week the Australian Dollar (AUD), New Zealand Dollar (NZD) pair is back to 0.9505 (1.0520), price has pivoted around this area over the last couple of days as the market waits for the RBNZ Cash Rate announcement Wednesday. Expected to remain at 1.75% we could see downside movement in the Kiwi based on a dovish view. We are expecting price to break under support of 0.9500 (1.0530) as the rollercoaster continues. A positive outcome/solution in the trade talks this week in Beijing will support the Aussie.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9529 0.9488 0.9565 0.9494 - 0.9616
AUD / NZD 1.0485 1.0455 1.0540 1.0399 - 1.0533

NZD/GBP (GBP/NZD)

The New Zealand Dollar (NZD) has eased lower from the weekly open against the British Pound (GBP) to 0.5235 (1.9100). Interestingly price should have moved the other way based on worse than expected fourth quarter GDP releasing at 0.2% from the 0.3% expected. GDP for the full year of 2018 was 1.4% and is the weakest growth in six years since 2012. Wednesdays RBNZ is firmly in focus with the cash rate expected to remain at 1.75% as it has done since November 2016 but the tone of the statement will be key.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5234 0.5200 0.5260 0.5196 - 0.5331
GBP / NZD 1.9105 1.9020 1.9240 1.8759 - 1.9244

 NZD/CAD

Last week’s worse than expected NZ jobs figures will continue to weigh on the New Zealand Dollar (NZD) against the Canadian Dollar (CAD) heading into Wednesday’s RBNZ Cash Rate announcement. The current 1.75% is expected to remain for a while longer but Adrian Orr’s key statement could send a strong message to markets which are expected a dovish view for 2019. Quarterly inflation expectations follow the statement and as with the BoE and the RBA we could see the forecast figure of 2.0% downgraded. We expect price to retest support of 0.8930

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8951 0.8930 0.9000 0.8930 - 0.9066

NZD/EURO (EURO/NZD)

Weighing on the New Zealand Dollar (NZD) this week will be last week’s poor jobs numbers. Currently price against the Euro (EUR) is 0.5970 (1.6740) with the NZD falling from last week’s yearly high of 0.6055 (1.6515). The RBNZ Cash Rate will remain at 1.75% at Wednesday’s announcement but markets are expecting 2019 growth forecasts to be downgraded which could push the EUR higher to 0.5880 (1.7000).  German prelim fourth quarter GDP may also give the EUR further strength when it prints Thursday.

DIRECT FX Current level Support Resistance Last wk range
NZD/EUR 0.5967 0.5935 0.5990 0.5935 - 0.6055
EUR/NZD 1.6758 1.6700 1.6850 1.6516 - 1.6849

NZD/YEN

The New Zealand Dollar (NZD) travelled to a low Friday of 73.80 against the Japanese Yen (JPY) but has opened the week in a positive mood reaching 74.50 overnight Monday. A Japanese Yen Holiday made for thin trading conditions. This week’s RBNZ Wednesday is firmly in focus, we should see no change to the 1.75% but the tone of Adrian Orr’s monetary statement will be listened to carefully by investors to confirm recent rhetoric around downside risks and how offshore trade related uncertainties will impact the kiwi. If we see a risk off tone develop this week based on the US/China meetings early January levels around 73.00 could come back into play.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 74.33 73.80 75.20 73.83 - 75.91

AUD/USD

The Australian Dollar (AUD) depreciated from 0.7250 last week to close just under 0.7100 levels. RBA comments pushed investors out of the Aussie Dollar over the more favourable US Dollar (USD). This week we have seen a continuation of the bearish decline to post a 4 January low of 0.7060. To where the Aussie tracks from here could be largely dependant on how trade talks end up in Beijing this week with US official Mnuchin and China currently discussing possible solutions. Early in the week US officials had said they were a long way off any agreeing on a long term solution. Equities have closed benign overnight, if we see further declines over the remainder of the week we could see the pair drop down below 0.7000. Monthly US CPI and Retail Sales to print.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7063 0.7000 0.7160 0.7058 - 0.7263

AUD/GBP (GBP/AUD) 

Price in the Australian Dollar (AUD), British Pound (GBP) is pivoting around the 0.5490 (1.8220) area after rebounding off last week’s low of 0.5450 (1.8340). GDP printed overnight showing fourth quarter GDP coming in at 0.2% from the 0.3% expected. GDP for the full year of 2018 was 1.4% and is the weakest growth in six years since 2012. It’s a quiet week for the Aussie Dollar on the calendar with only tier UK CPI y/y and Retail Sales to print later in the week. With the key Brexit date looming we think the Pound will deteriorate and retest the 0.5600 (1.7860) level again over the next two weeks.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5491 0.5405 0.5525 0.5452 - 0.5598
GBP / AUD 1.8211 1.8100 1.8500 1.7865 - 1.8343

AUD/EURO (EURO/AUD)

Last week’s hangover from several separate RBA dovish comments could continue to weigh on the Australian Dollar (AUD). The Euro (EUR) already looks to push higher against the under pressure Aussie to 0.6250 (1.6000) Certainly German prelim fourth quarter GDP will help if this comes in positive above 0.1%. Third quarter 2018 was poor with expenditure of households declining. Later in the week assistant RBA governor Kent speaks.

DIRECT FX Current level Support Resistance Last wk range
AUD/EUR 0.6263 0.6230 0.6310 0.6227 - 0.6358
EUR/AUD 1.5966 1.5850 1.6060 1.5729 - 1.6059

AUD/YEN

The Australian Dollar (AUD) dropped in value a whole 2% last week against the Japanese Yen (JPY) falling to 77.45 late Friday. This week due to a lack of economic data for the pair we should see price drift along with risk sentiment. Any rebound in equity markets should favour the Aussie back to 79.00, already it has made a good start recovering to 78.00 Tuesday lunch. Only data of note later in the week is Japanese fourth quarter GDP expected to print at 0.4%

DIRECT FX Current level Support Resistance Last wk range
AUD/YEN 77.96 77.40 79.00 77.42 - 79.26

AUD/CAD

Fantastic jobs numbers late last week took the Canadian Dollar (CAD), Australian Dollar (AUD) pair to 0.9400 levels after figures confirmed an increase of 66,800 jobs in January. Analysts were only expecting 8,000, the third month in a row job numbers have been good pushing price to November 2018 levels. With Crude stable around the 52.50 area we should see price ease lower with a lack of data out this week for the pair.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9388 0.9350 0.9570 0.9380 - 0.9522

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Market commentary:

Major US indices have closed the week in negative territory after coming in lower Friday for the third straight day. The Nasdaq, DOW and S&P have posted the first loss in seven weeks based on a risk averse tone which has developed. With reports surfacing that the US/China trade negotiations may be delayed a while past the 2nd of March deadline for tariffs. Tariffs will go from the current 10% to 25% on this date with trade negotiator Robert Lighthizer saying China best hurry to speed up discussions. The US Dollar has had its best week in over six months with the US Index at 96.66 posting gains of over 1% on its rivals with over 2.2% on the Australian Dollar. The last time the big dollar made gains of this size was in August last year. The safe haven US Dollar really coming into play with investors preferring to stay in USD based on weakening global economy. Crude oil has a choppy week trading between 55.25 and 51.75 losing around 5% on global concerns. Recently Oil has had some support with OPEC supply cuts and sanctions over Venezuela. The New Zealand Dollar has been the poorest performing currency over the past week next to the Aussie falling against the major's down 2.19% against the greenback from 0.6900 to close around 0.6742. Monday has seen the kiwi pick up early week support but with the RBNZ Cash Rate announcement due to release at the new time of Wednesday 2.00pm trading until then could be subdued. With recent Reserve Bank of Australia and Bank of England downwardly revised 2019 growth forecasts we are expecting more of the same from Adrian Orr in his statement to gauge direction and tone for 2019

Australia

The Australian Dollar is easiest the worst performing currency over the last week falling the most against the US Dollar of approx 2.0% on global risk uncertainties. The RBA left rates unchanged last week at 1.50% as it has done since mid-2016 saying downside risks remain over the following two years as they suggested a possible downgrade to the GDP forecast. Markets reacted with relief with the AUD recovering well into Tuesday evening sessions. Wednesday saw the Australian Dollar hit hard after news out in a speech by RBA governor Lowe adopted a more neutral bias, suggesting the economy could be weaker than forecasts suggest. Lowe went on to say the RBA could cut rates if jobs growth deteriorates and the unemployment starts to climb. The Aussie continued to be sold off into the weekly close, against the big Dollar falling to around 0.7080. It’s a very quiet week ahead on the economic docket with only RBA governor speaking Friday. Any support in the currency will come from a surging Iron Ore values with prices expected to rise over the coming months.

New Zealand

Direction in the New Zealand Dollar this week will be slow with the first 2019 RBNZ Cash Rate announcement published Wednesday. Yes, according to the RBNZ website the new day of Wednesday and time of 2.00pm replaces the old date and time of Thursday 9.00am. We are not sure why, perhaps it’s too early in the day for Adrian Orr and he needs to do school drop offs? Speculation is increasing on a dovish stance by Orr with other recent central banks downplaying growth forecasts for 2019. The rate will stay as 1.75% for now but several players including banks are factoring in a drop to 1.50% later in the year based on several key fundamental economic indicators in force. We agree there are upside and downside risks on the horizon but until we hear what Orr has to say Wednesday and how data publishes over the next few months predictions will remain predictions. Formally we have no actual economic data printing this week but only further "Orr" speak later on Thursday when he speaks again before the Finance and Expenditure Select Committee in Wellington. The safer probable outcome this week for the Kiwi is further downside pressure.

United States

China was out of action last week with Chinese New year in play. They have returned to the markets this week so good activity should resume.  President Trump delivered his second "state of the union" address Wednesday. He tried to cast his views as bipartisan amid ongoing feuds over immigration after the longest government shutdown in US history. A trade deal with China looks to be slowly ramping up as this week Lightizer and Secretary of State Mnuchin visit Beijing for another round of talks. Trump has said- Chinese policies will need to be changed to protect American workers and businesses. Any agreement must contain structural changes to end unfair trade practices, reduce the current deficit and protect American jobs. With the deadline of 1 March looming when tariffs will change from 10% to 25% I suspect China will be keen to get something locked in. After this date US Congress, I am sure, will be more than happy to extend the current crappy deal as the Americans say something like - come back to us when you are ready. Another looming significant date is the 15th of this month - this Thursday when the current federal govt funding package runs out. The Democrats have remained staunch in not providing funding for Trump’s wall and I suspect another Govt shutdown or "state of emergency" is possible. US CPI m/m followed by Retail Sales m/m are the main events of the week.

Europe

The European Union Economic Forecasts report was released Thursday.  This serves as the EU’s basis for overall economic performance over the next two years and covers around 180 subjects. The report highlighted a cut to the Eurozone economic growth forecast for 2019 because it expects the area’s biggest countries will be held back by global trade tensions. Inflation has already been revised down for this year to 1.3% from the 1.9% in 2018 and with recent economic data still disappointing in the Euro zone chances are increasing for a continued slowdown. German fourth quarter GDP publishes Thursday and is expected to print up on third quarter figures and boost the EUR. Currently off around 150 points against the big dollar in the last week at 1.1270 it’s nearing the multi-year low of 1.1215 which is a real worry for the region especially if the US Dollar continues to be well supported on economic data.

United Kingdom

Except for the normal volatility around the benchmark Bank of England (BoE) announcement the British Pound had a reasonably stable week of movement.  The Bank of England (BoE) left the benchmark cash rate unchanged at 0.75% voting 0-9 in favour of a remain. Comments from the BoE's Mark Carney suggested a rate hike in 2019 wasn’t ruled out but this largely depends on Brexit and what happens over the next 45 odd days before they bow out of the EU. Brexit is now entering what’s been called as an "emergency" zone with the limited days left to arrange a plan to exit the EU. The UK government has admitted that MP's could vote on a new deal less than a month before the UK is due to leave. This week the economic docket contains several key releases, last night’s GDP m/m printed well down on the expected 0.0 at -0.4% stunning markets with price dropping to 1.2850. Wednesday's CPI y/y should print around the 1.9% zone with Retail Sales Friday.

Japan

Even though it was a Japanese holiday yesterday with National Foundation Day we have seen the Japanese Yen sold off with increased risk appetite. Against the US Dollar price is sitting just above the 110.40 level as investors turned positive towards a solution concerning the trade talks in place between Mnuchin and Chinese officials in Beijing. The Japanese unemployment rate came in lower than the expected 2.5% at 2.4% along with manufacturing numbers which are also showing growth with the index at 50.3. Japanese Average Cash earnings y/y which is the total value of employment income collected by workers in 2018 is released today and is expected to show a nice lift to 1.7%, 2017 result showed 0.9%. Japanese National Foundation holiday Monday. This week is absent of any tier one economic releases, preliminary quarterly GDP prints Thursday.

Canada

Employment in Canada for the month of January surged ahead of expectations, led by the biggest month ever recorded in private business when figures showed an increase in hiring my a massive 66,000 compared to the expected 8,000 jobs. The unemployment rate jumped to 5.8% from 5.6% due to more people looking for work but was overlooked. The Canadian Dollar rallied strong on the numbers up 0.6% against the greenback and taking price against the Kiwi to 0.8930. Low wage growth and temperamental Crude Oil prices would hinder the Bank of Canada from hiking next month. No tier one data prints this week, price will be dictated by offshore geopolitical risks.

Daily exchange rates

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Source: CoinDesk

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