Currency Commentaries July 9

Currency Commentaries:

Please click below, to skip the Market Overview section, and go straight to our short specific currency reports.

NZD/USD AUD/USD
NZD/AUD (AUD/NZD) AUD/GBP (GBPAUD)
NZD/GBP (GBP/NZD) AUD/EURO (EURO/AUD)
NZD/CAD AUD/YEN
NZD/EURO (EURO/NZD) AUD/CAD
NZD/YEN
Market Overview:
Last week was an eventful one, with the Bank of England (BOE), European Central Bank (ECB), and the Chinese Central bank (PBOC), all easing monetary conditions. The easing of interest rates normally provides a “risk on” move, with currencies such as the NZD and USD normally seeing strong topside gains as a result. However this was not the case last week. This was most likely because risk assets have already had a significant rally in the past four to six weeks (e.g. global equities up 7%, AUD/USD up 5%), and the interest rate easing moves (PBOC rate cut the exception), had been largely anticipated by the market. Also however, with a back drop of a US economy that appears to be “decelerating”, a Euro zone that continues to face huge challenges, and with China barely maintaining an expansionary manufacturing sector, continued topside moves for risk currencies, such as the NZD and AUD, are tough to justify. The Friday night session saw both the AUD and NZD loose .5% of value against the USD, to close at the weeks lows, as a result of disappointing US employment growth data.

The key local event last week was the expected unchanged rate interest rate announcement from the RBA. One the whole both AUDUSD and NZDUSD traded tight ranges with a marginally upwards bias throughout the week, before Friday night’s sell off. Both posted record post float highs against EUR, and again ground higher against GBP.

The week ahead is dominated by the release of key Chinese data, with CPI inflation today, trade data Tuesday, retail sales and GDP Friday.

Australia
Last week building approvals and retail sales data both came in significantly stronger than the market had expected. As expected, was the RBA’s unchanged interest rate announcement. Their accompanying statement, left room for easing in the coming months, if growth indicators come in lower than expectations. So all in all, the RBA appears comfortable with current monetary conditions. In addition to the potential of downside risks from Chinese data releases this week, the release of Australian employment data on Thursday, will be watched closely by the markets.
New Zealand
There was very little data out in NZ last week. Of note however is the return of softer dairy commodity prices, in the latest Fonterra Global Diary Auction. In the interest rate market following the monetary easing from the ECB, BOE and PBOC, we have seen downward pressure on short term rates. Whilst the RBNZ is expected to leave the cash rate unchanged at 2.50% well into next year, if the global outlook continues to darken, expect the market to again start to price in easings from the RBNZ at some point. No top tier data due for release in NZ this week.
United States
Last week’s data gave more evidence that the US economy is growing slowly, with only modest payroll gains and weak readings in key manufacturing indices. The June FED interest rate meeting saw the FED re-start its steps to stimulate the economy by extending what it terms “Operation Twist”, to promote economic growth. Whilst not unexpected by the market, their comments overall were seen as “dovish”. Their economic projections were weaker, and the comment they were "prepared to take further action as appropriate", signaling their concern once again, at the current state of the US recovery. Minutes of the FED meeting, which will be available to the market on Thursday evening, will be closely scrutinized to gleam a closer thinking of their thinking. Non Farm Payroll data released on Friday night undershot market expectations by a substantial margin, and compounded the already heavy sentiment towards the US economy.
Europe
The pressure to find solutions to the current issues continues in Europe. Funding issues for Italy and Spain again came to the fore last week, as the interest rates they pay on their debt again soared. As these interest rates soar, the EURO comes under pressure. Adding further downside pressure on the EURO was the ECB rate decision. This week is light on top tier economic data, so again the prevailing interest rates on their debt will be a significant driver of sentiment and therefore the value of the EURO. With a lack of economic data, political rhetoric will likely to be the focus of attention this week. Market perception as to the strength of further progress in the Euro zone, or just as likely the lack of progress, will continue to be a key driver of the EURO.
United Kingdom
Data wise last week was mixed for the UK. Manufacturing numbers beat expectations, but construction and services numbers undershot significantly. The BOE announced an increase to its quantitative easing program (QE: essentially the electronic printing of money, to stimulate the economy), as was widely anticipated by the market. All in all, the result was a further slide in the value of the Pound Sterling. This week is a very quiet one in the UK, however Tuesday sees the release of further key manufacturing data. Interestingly, the current market consensus is for an improvement in this data set, which if true, should provide some support for the GBP.
Japan
Last week’s monthly manufacturing data release wasn’t as downbeat than expected. However the threat of intervention from the Bank of Japan (BOJ) last week, seems to have played on the market, with the JPY well off its recent highs. With Japanese current account numbers due later today, and the BOJ monetary policy decision on Thursday, it is potentially a big week for the YEN. Whilst further stimulation from the BOJ would not surprise in the current environment, at present it’s a 50/50 call, with no change just as likely, come Thursday.
Canada
The Canadian economy had a quiet start to the week. Building permits and employment numbers on Friday night beat expectations, whilst manufacturing data disappointed. This week sees the release of the Bank of Canada Business Outlook Survey, housing starts and trade balance numbers. The Canadian dollar has seen choppy trade for the most part this week, as the dual forces of a slowing global outlook, and increasing central bank stimulus make for confused price action. We expect this trading theme to continue in the short term at least.

Major Announcements last week:
• RBA leaves cash rate unchanged
• Australian retail sales better than expected
• Asian regional manufacturing indexes were weaker than expected as was the US manufacturing survey
• Euro area unemployment rate rose to a record high of 11.1% in May
• Chins surprises the market with an interest rate cut
• ECB cutting rates by 25bps
• sharp decline in the US ISM manufacturing data
• Canadian unemployment rate better than expected
• US unemployment rate worse than expected
• Key US manufacturing index disappoints
• UK manufacturing data better than expected, construction data worse

NZD/USD
The combination of easing of monetary conditions by central banks globally, and again weakening global growth expectations, makes for a confusing landscape for the NZDUSD at present. Whilst reducing central bank interest rates overseas see our interest rate yields again attractive to offshore investors, slowing growth doesn’t support our commodity prices, so is not supportive of the NZ economy as a whole, and is therefore NZD negative. US employment data released on Friday, knocked the NZDUSD heavily, at the end of last week. The strength of Chinese data releases will be key to the initial fortunes of the NZD this week, as will global sentiment in general, as is the case more often than not in the current uncertain environment. We have no domestic tier one NZ data this week, with the NZIER Quarterly Survey of Business Opinion on Tuesday the sole local focus. Expect any topside moves to be limited this week.
Current level Support Resistance Last week’s range
NZD/USD .7970 .7900 .8100 .7962 - .8056
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NZD/AUD (AUD/NZD)
With just over a .5% trading range, it was another extremely tight week for the NZD versus the AUD. As has come to be the case in recent years, this currency pair remains very stable. The expected no change to the RBA interest rate decision last week, was accompanied by a statement that sees the RBA comfortable with the current conditions, with talk of future easing only on the cards if growth projections undershoot. Given the current state of play, if any bias exists in this pair at present, it’s possibly to AUD strength. Chinese data releases this week, and Thursdays Australian unemployment numbers, are the likely influences, with the only NZ date due the NZIER Business Confidence report on Tuesday.
Current level Support Resistance Last week’s range
NZD/AUD .7815 .7780 .7980 .7800 - .7843
AUD/NZD 1.2795 1.2531 1.2850 1.2749 - 1.2819
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NZD/GBP (GBP/NZD)
Another strong topside move for the New Zealand dollar against the Pound Sterling last week. For those looking to buy NZD, this is of obvious frustration, as we are now solidly back to levels not far of recent NZDGBP highs (GBPNZD lows). Whilst the BOE quantitative easing program expansion last week was widely anticipated, none the less it is of negative short term influence on the GBP. Whilst the UK has at times seen some better data released, equally the data flow disappoints as well. All in all, it continues to be very hard to be an optimist, in terms of the UK economic fortunes going forward. Having said that, it’s is difficult to see the NZDUSD continuing to post fresh highs at present. Therefore, whilst we are again at elevated levels of NZDGBP, perhaps it isn’t likely to run to much further on the topside either. If we see a return to very negative sentiment globally again at any point, we will again see NZDGBP on the skids. Current levels therefore, once again offer very good levels to sell NZD, buy GBP.
Current level Support Resistance Last week’s range
NZD/GBP .5150 .5000 .5200 .5099 - .5181
GBP/NZD 1.9417 1.9230 2.000 1.9301 - 1.9611
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NZD/CAD
An extremely choppy range trading past week, with an overall move lower the result. With the NZIER Business Confidence report on Tuesday the only local data of note in NZ, expect the BOC Business Outlook Survey, housing starts and trade balance numbers due for release, to dominate data driven moves this week.
Current level Support Resistance Last week’s range
NZD/CAD .8125 .8000 .8200 .8118 - .8184
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NZD/EURO (EURO/NZD)
While some of the periphery EU countries had better data last week, German data disappointed. This assisted the NZDEUR to a record post NZD float highs, as the EUR saw across the board weakness. This week Chinese data releases will be a key driver for the NZD. The Chinese rate cut last week surprised, and again points to the significant risk that an Asian based slowdown presents to the global economy. Any further signs of cracks in the Chinese economy, will see the AUD and therefore the NZD, under significant pressure. Sellers of NZD on this cross, should be extremely happy to convert at current levels.
Current level Support Resistance Last week’s range
NZD/EURO .6495 .6300 .6550 .6318 - .6505
EURO/NZD 1.5396 1.5267 1.5873 1.5372 - 1.5827
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NZD/YEN (NZD/YEN)
Both the Japanese and NZ economies have been reporting reasonable data. Therefore there is little currently to drive this cross either way. The NZD remains in demand on dips, as it looks likely that further central bank stimulation will continue, which in general benefits the NZD. The BOJ monetary policy decision on Thursday this week, will now be the focus in the short term. With other central banks increasing stimulation, the way is paved for the BOJ to increase its efforts to promote growth, and temper YEN strength at the same time. Having said that, it is currently a 50/50 call, as to whether or not they cut on Thursday. Expect sideways trading this week, ahead of the BOJ announcement.
Current level Support Resistance Last week’s range
NZD/YEN 63.46 62.50 64.50 63.39 - 64.36
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AUD/USD
Falling global growth prospects, are of obvious concern for the Australian economy. With the Asian markets the core buyers, this week is a big one for the AUD, as we have a full calendar of Chinese data to be released. Whilst the easing of interest rates by central banks globally help support the AUD, from both a yield and “growth stimulation” perspective, further topside moves for the AUDUSD at the moment, seem hard to justify. Unless we see a significantly stronger data than expected released by China this week, expect further topside moves for the AUD to be limited. Thursday’s Australian unemployment data release, is the key Australian data set this week.
Current level Support Resistance Last week’s range
AUD/USD 1.0196 1.0150 1.0350 1.0183 - 1.0310
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AUD/GBP (GBP/AUD)
Slowing global growth and concern about Asian demand should at some point start to dent the rise of the AUD over the GBP. However it was not the case last week, as we saw continued grinding appreciation. The RBA statement on Tuesday, was AUD supportive, as was the surprise rate cut from China. Conversely the BOE expansion of their stimulatory quantitative program, was never going to aid the Pound Sterling’s fortunes. Thursdays Australian unemployment data release will be the key data driver for this pair this week. Current levels, again provide very favorable levels rates to sell AUD, buy GBP. For those coming the other way, once again it’s a case of hoping for a significant negative sentiment driven move, to provide more palatable levels to buy AUD.
Current level Support Resistance Last week’s range
AUD/GBP .6585 .6500 .6700 .6522 - .6632
GBP/AUD 1.5186 1.4925 1.5385 1.5078 - 1.5332
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AUD/EURO (EURO/AUD)
Both the AUD and NZD decoupled from European risk factors last week, with both showing remarkable resilience against a declining EUR. A EUR under pressure, normally drags the AUD with it. Not so last week. The surprise rate cut by China, certainly helped the AUD’s performance. As a result we are back at all times highs of the AUDEUR. Continued focus on the debt markets in Europe, and of Spain and Italy in particular, will be drivers this week. Given the particularly heavy nature of the EURO last week, further AUD upside can not to be ruled. Given the slowing global economy however, current levels offer very favorable levels to sell AUD, buy EUR. Australian unemployment data due on Thursday, is the key Australian data release for the pair this week.
Current level Support Resistance Last week’s range
AUD/EURO .8306 .8100 .8450 .8086 - .8318
EURO/AUD 1.2039 1.1834 1.2345 1.2022 - 1.2367
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AUD/YEN
A choppy week for the AUDJPY, ahead of a big dump on Friday night, due to the weaker than expected US employment growth data release. This week the release of Chinese data will have an obvious impact on the fortunes of the AUD. If we see data that is weaker than market expectations, the AUD will be the hardest currency hit, due to its reliance on the Asian markets, its biggest export destination. Thursday also will be extremely interesting, as the BOJ gets it opportunity to tinker with its monetary policy. Given the number of central banks that cut interest rates last week, there is a growing expectation the BOJ follow suit. That said, the market is evenly poised, so a move or no move, may not provide much market impact, dependent of course, on market positioning directly before the announcement.
Current level Support Resistance Last week’s range
AUD/YEN 81.20 81.00 83.00 81.09 - 82.30
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AUD/CAD
An extremely choppy week last week, with no real direction of note. Given the continued pessimism over the global growth profile, current levels once again offer very good value buying of CAD with AUD. Canadian business confidence survey due Tuesday, trade balance Thursday, along with Australian unemployment data also on Thursday, are the data events of note this week. That said, it’s likely Chinese data releases will have equal if not more bearing, on the AUD performance this week, given the evidence one way or the other, of the state of the Chinese economy, that will be provided. With China being Australia’s biggest export market, this data could be of significant impact on near term AUD direction.
Current level Support Resistance Last week’s range
AUD/CAD 1.0390 1.0250 1.0450 1.0386 - 1.0439
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