Markets have turned yesterday to become risk averse again based on President Trump’s tweet; NZD gaped lower on the weekly open to 0.6790 after President Trump spooked markets; NZDAUD cross extends its 4th week of range bound activity

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By Neven Fisher*:

Markets have turned yesterday to become risk averse again based on President Trump’s tweet which was aimed at the Iranian President- Rouhani and goes like this:- NEVER EVER THREATEN THE UNITED STATES AGAIN OR YOU WILL SUFFER CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE. WE ARE NO LONGER A COUNTRY THAT WILL STAND FOR YOUR DEMENTED WORDS OF VIOLENCE & DEATH. BE CAUTIOUS. Fake news and “witch hunt” remarks have followed, The President intents to call a spade a spade and continue with his own personal agenda. The US Dollar Index has bounced off 94.20 over the weekend and pushed higher to 94.60 as Trump’s tweet weighed in on risk assets sending the index higher. The greenback has been the strongest currency this week and may continue to be for the next few days if “tweets” continue to pressure sentiment.  As US based equity and commodity based assets are weaker so to are the UK equity markets as Brexit concerns weigh down the British Pound. The Pound was off from 1.3250 late last week falling to 1.2950 before reversing some of these losses with is recovering back to 1.3130. The Lloyds Bank Investor Sentiment index which measures sentiment in asset classes such as equities and UK Properties has declined 7.2% from June 2018 to July 2018 with the most concerning aspect being property. Sentiment towards the UK Government and Govt Bonds has also been affected by Brexit uncertainty dropping over the last month. China has vowed to retaliate soon in response to President Trump’s 200B tariff threat on Chinese products. Even a great start to the second quarter US earnings season has not helped sentiment with more than 90% of US companies reporting surprises to the upside. The (ECB) European Central Bank will announce their cash rate Thursday with no change expected to monetary policy until well into mid 2019. With a reasonably light economic week on the cards direction is expected to be mainly driven by Presidential speak. The New Zealand Dollar remains range bound since late June trading both ways within a cent of 0.6800 against the US Dollar, this week we should see the same with only NZ Trade Balance on the docket.

Major Announcements last week:

  • Trump goes on twitter tirade
  • Japanese Holiday Monday- Marine Day
  • US Building Permits down at 1.27M from 1.33M
  • Australian Employment increased from 16.7K to a huge 50.9
  • UK monthly Retail Sales down to -0.5% from 0.1% expected
  • Canadian monthly Retail Sales prints well up at 1.4% from 0.6% expected

NZD/USD

The New Zealand Dollar (NZD) gaped lower on the weekly open to 0.6790 after President Trump spooked markets by threatening the Iranian President Rouhani via twitter. The choice of media for the President shows us his heightened perception for “fake news” as he continues to prefer using twitter as his main source of media. The kiwi has drifted lower through Tuesday to 0.6770 before recovering back to 0.6790 midday. More sideways action is expected around the 0.6800 area this week depending on how markets perceive risk and how President Trump uses twitter. With a light NZ docket this week we look towards US quarterly GDP figures for further movement.

DIRECT FXCurrent levelSupportResistanceLast wk range
NZD/USD0.67850.67150.68500.6714 – 0.6841

NZD/AUD (AUD/NZD)

The New Zealand Dollar (NZD), Australian Dollar (AUD) cross extends its 4th week of range bound activity with the high of 0.9220 (1.0850) and low of 0.9100 (1.0990) in place. We still see “eventually” a shift to the downside through 0.9100 with Aussie Optimists outweighing the pessimists. Confidence is holding up with solid economic growth, home prices and improving wage growth. Wednesday’s Australian quarterly CPI is the key economic release this week and should show improving numbers higher than 0.4% of April. With the cross trading at 0.9190 (1.0870) currently we expect this to drift lower back to the range low of 0.9100

DIRECT FXCurrent levelSupportResistanceLast wk range
NZD / AUD0.91890.91000.92200.9137 – 0.9206
AUD / NZD1.08711.08501.09901.0862 – 1.0945

NZD/GBP (GBP/NZD)

The New Zealand Dollar (NZD) made solid gains against the British Pound over the week with it closing at 0.5185 (1.9290), 65 points higher from the weekly open of 0.5120 (1.9540). Weak UK data weighed down the Pound (GBP) with surprising declines in Retail Sales and inflation data taking the pair to fresh July lows. No significant UK data is to publish over the remaining week, we can expect the cross to remain around current levels. Currently trading at 0.5180 (1.9300)

DIRECT FXCurrent levelSupportResistanceLast wk range
NZD / GBP0.51780.51500.52100.5120 – 0.5209
GBP / NZD0.65881.92001.94101.9199 – 1.9533

 NZD/CAD

The Canadian Dollar (CAD) remains a sideways market against the New Zealand Dollar (NZD) trading between the range of 0.8980 and 0.8900 as markets await NAFTA word. With little on the economic docket this week I suspect the range should hold. NZ Trade Balance prints tomorrow and may give the kiwi a boost if figures fall in line with positive numbers over the past 6 months. We are picking the kiwi to advance to 0.9100 over the coming days.

DIRECT FXCurrent levelSupportResistanceLast wk range
NZD / CAD0.89350.88700.89900.8899 – 0.8976

NZD/EURO (EURO/NZD)

Manufacturing data is high on the list of driving price action this week in the New Zealand (NZD), Euro (EUR) cross with ECB announcing their cash rate later in the week. A quiet week for kiwi data with only the Trade Balance to print markets will look to French and German Manufacturing figures for clarity on direction. Choppy since 28th of June the pair has been operating in a band of 0.5840 (1.7110) and 0.5770 (1.7330) Trading currently at 0.5800 (1.7230) it’s anyone’s guess as to direction from here.

DIRECT FXCurrent levelSupportResistanceLast wk range
NZD/EUR0.58040.57700.58500.5781 – 0.5840
EUR/NZD1.72291.71001.73301.7122 – 1.7299

NZD/YEN

The New Zealand Dollar (NZD) continues its run lower against the Japanese Yen (JPY) after closing the week around 75.90 we are seeing further declines with the pair trading currently at a low of 75.55. This level is the 50% retracement of the high of 76.90 and the low of 74.00 representing solid support and a potential for a kiwi push back to 76.00 this week. With little economic data to print this week risk sentiment will be key.

DIRECT FXCurrent levelSupportResistanceLast wk range
NZD / YEN75.4675.1576.8075.28 – 76.85

AUD/USD

The Australian Dollar (AUD) travelled to a high last week of 0.7430 closing the week at 0.7410 against the US Dollar (USD). The pair continues to trade between a tight range of 0.7320 and 0.7450 since mid June. Initial employment data gave the Aussie a massive boost after figures showed wage growth was positive, exactly what the RBA were looking for as a trigger for higher inflation and rates. Monday’s open has seen investors duck for cover after President Trump attacked the Iranian President on twitter. This spooked markets with the Aussie losing over 60 points over the following hours. This week’s highlight will be AUD CPI data which prints tomorrow and should give us a further direction prior to US GDP Friday. Depending on risk sentiment we expect the Aussie to squeeze higher back through 0.7400 especially if CPI prints well.

DIRECT FXCurrent levelSupportResistanceLast wk range
AUD / USD0.73820.73100.74400.7319 – 0.7437

AUD/GBP (GBP/AUD) 

The Australian Dollar (AUD) has broken key resistance against the depreciated British Pound (GBP) posting a fresh high of 0.5690 (1.7570) on weaker than expected Retail Sales and Inflation data. The Pound (GBP) recovering back to 0.5630 Tuesday with risk markets sitting out. We could see further downside in the cross to 0.5620 (1.7800) this week if risk averse conditions continue.

DIRECT FXCurrent levelSupportResistanceLast wk range
AUD / GBP0.56310.56000.56750.5593 – 0.5688
GBP / AUD1.77581.76201.78701.7581 – 1.7878

AUD/EURO (EURO/AUD)

After reaching a low late Friday of 0.6300 (1.5880) the Euro (EUR), Australian Dollar (AUD) cross retraced back to 0.6330 (1.5800) as we commented it would, where it closed the week. With risk investors sitting to the sides we have seen risk averse sentiment drive the EUR higher to 0.6305 (1.5860) where it sits Tuesday.

DIRECT FXCurrent levelSupportResistanceLast wk range
AUD/EUR0.63140.63000.63700.6294 – 0.6382
EUR/AUD1.58371.57001.58801.5688 – 1.5889

AUD/YEN

The Australian Dollar (AUD) is currently trading at lows of 82.10 against the Japanese Yen (JPY) after peaking at 83.90 last week on positive Aussie employment data. Lower equity and commodity values have weighed down the Australian Dollar (AUD). Heading into Australian CPI data tomorrow we are expecting a spike higher towards 83.00 with this data expected to be positive. Fibonacci calculations are also showing support at 82.00

DIRECT FXCurrent levelSupportResistanceLast wk range
AUD/YEN82.1081.8082.7081.82 – 83.86

AUD/CAD

The Canadian Dollar (CAD) fall away sharply after the weekly open against the Australian Dollar (AUD) bouncing off its recent lower range of 0.9700 from 0.9750. Australian CPI Wednesday should give the pair further direction, we are expecting figures slightly better than the 0.5% expected which should put the cross back above 0.9770

DIRECT FXCurrent levelSupportResistanceLast wk range
AUD / CAD0.97200.97000.97800.9704 – 0.9788

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Market commentary:

Markets have turned yesterday to become risk averse again based on President Trump’s tweet which was aimed at the Iranian President- Rouhani and goes like this:- NEVER EVER THREATEN THE UNITED STATES AGAIN OR YOU WILL SUFFER CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE. WE ARE NO LONGER A COUNTRY THAT WILL STAND FOR YOUR DEMENTED WORDS OF VIOLENCE & DEATH. BE CAUTIOUS. Fake news and “witch hunt” remarks have followed, The President intents to call a spade a spade and continue with his own personal agenda. The US Dollar Index has bounced off 94.20 over the weekend and pushed higher to 94.60 as Trump’s tweet weighed in on risk assets sending the index higher. The greenback has been the strongest currency this week and may continue to be for the next few days if “tweets” continue to pressure sentiment.  As US based equity and commodity based assets are weaker so to are the UK equity markets as Brexit concerns weigh down the British Pound. The Pound was off from 1.3250 late last week falling to 1.2950 before reversing some of these losses with is recovering back to 1.3130. The Lloyds Bank Investor Sentiment index which measures sentiment in asset classes such as equities and UK Properties has declined 7.2% from June 2018 to July 2018 with the most concerning aspect being property. Sentiment towards the UK Government and Govt Bonds has also been affected by Brexit uncertainty dropping over the last month. China has vowed to retaliate soon in response to President Trump’s 200B tariff threat on Chinese products. Even a great start to the second quarter US earnings season has not helped sentiment with more than 90% of US companies reporting surprises to the upside. The (ECB) European Central Bank will announce their cash rate Thursday with no change expected to monetary policy until well into mid 2019. With a reasonably light economic week on the cards direction is expected to be mainly driven by Presidential speak. The New Zealand Dollar remains range bound since late June trading both ways within a cent of 0.6800 against the US Dollar, this week we should see the same with only NZ Trade Balance on the docket.

Australia

The Australian Dollar movement last week was largely persuaded by employment data which was well up on expectation after several months of negative numbers. The data represented a jobs forecast which far exceeded the expectations of 14K, adding just short of 51K jobs to the economy for the month of June. This data comes as a relief for the RBA who have repeatedly cited low wage growth as detrimental for meeting higher inflation targets. Interestingly the Aussie was choppy through most of the week with it only stronger against the British Pound. The weekly outlook for the Australian Dollar will lie with the (CPI) Consumer Price Index with the headline data expected to reach the Reserve Bank Of Australia’s (RBA) inflation target of 2-3%. With signs of higher price pressures this may put pressure on the RBA to hike rates if recent data continues to be in line with the Central Bank’s forecast for growth. However, if the CPI numbers are lower along with continued threats of a trade war between the US and China the RBA may stay on the sidelines for a little longer.

New Zealand

Although inflation data out in the early stages of last week provided some domestically led direction for the New Zealand dollar, since then it’s largely been a case of offshore events driving the currency around. As always, President Trump’s twitter account has been front and centre in that respect and his comments regarding his opposition to Fed interest rate hikes, and the resulting strength in the USD, certainly grabbed the markets attention. The President was quick to clarify that the Fed is independent and it makes its own decisions, but you get the feeling the President would love to be calling the shots on monetary policy as well! Although not market moving, we did see NZ migration data out late last week and it showed net arrivals to the year ended June dropped 10% to a total of 65,000. That’s still a very high overall level historically, but at least the trend is now heading in the right direction. Although this week’s economic calendar includes the Trade Balance and ANZ Consumer Confidence, the market will continue to look to offshore (read: Twitter) for direction.

United States

Data from the United States last week confirmed the economy continues to power ahead, keeping the US Fed well on track for another couple of interest rate hikes this year, that is assuming they ignore comments from President Trump. He has made his personal opinion on interest rate hikes, and the resulting strength in the USD, plainly clear in recent days and it’s certainly weighed on the USD. This leaves the USD in an interesting position. Economically, the USD is well supported and all else aside, continued strength over the coming months would seem like a no brainer. But the Trump administration has repeatedly let it known that the “strong dollar policy” adhered to by previous administrations is hurting America’s competitive edge, and where prior president’s went out of their way not to comment on the desired level of the USD, Trump’s verbal interventions into the market are having an impact on current pricing and future expectations. I think the only really safe bet is that we will continue to get tweets on the subject whenever Trump feels it’s necessary. This week we get GDP data from the second quarter and it’s looking like it could be a very strong number. Median expectations are for around 4.3%, but we’ve seen individual estimates as high as 5%.

Europe

The Euro Was one of the best performing currencies over much of last week with the currency pushing to a high of 1.1750 against the US Dollar where it closed. This week we have the pivotal (ECB) European Central Bank meeting Thursday night which is not expected to give any relief for the depreciating Euro. Mario Draghi already confirming policy will remain in place until at least June 2019. Later Tuesday we see preliminary July PMI print for Germany, this should spark movement in price action, although if the published figure is anything close to June’s final PMI figure of 55.00 we may not have much excitement.

United Kingdom

Last week proved to be a tough one for the UK Pound with a raft of data releases underperforming and weighing on the currency. Softer than forecast inflation data did much of the damage, coming in at 2.4% vs 2.6% expected, but this was also followed up by a surprising decline in Retail Sales. Retail Sales ex Auto and Fuel declined 0.5% vs for the month of June, vs and expectation of +0.2%. On the back of the disappointing data the probability of an August interest rate hike from the Bank of England has decreased somewhat, weighing on the GBP. Brexit negotiations continue to be a shambles with PM May holding onto a very slim majority of support within her own party. May’s political vulnerability comes are the worst possible time for a leader trying to negotiate such an important deal, and with the March 29, 2019 deadline fast approaching, the risk of Britain leaving the EU without any sort of deal continues to grow.

Japan

The Japanese Yen made huge inroads last week after retracing lower off 113.00 travelling back to early July levels of 111.00 against the US Dollar with markets seeking the safe haven of the Yen. National Core inflation published at expectations of 0.8% taking the JPY to sub 111.00 levels as we expected, making these levels the lowest since July 9th. The Bank of Japan (BoJ) announced a special operation to buy unlimited Japanese Government Bonds (JGB) with a remaining life of 5 to 10 years with an effective cap of 0.110% for the first time since March hinting at speculation the BoJ could be considering altering the loose monetary policy. This week the US Dollar is back on top, the Yen has lost a little ground as it trades around 111.50 levels.

Canada

The Canadian Dollar (CAD) reversed its early week losses across the board late Friday snapping to 1.3110 against the US Dollar. Canadian Core Retail Sales published way above expectations of 0.6% at 1.4% creating a frenzy of buying in the Loonie. Support held at 1.3100 rejecting a break through here as the pair closing the week. This week we have seen Crude continue its decline from levels above 69.30 falling back to 67.20 increasing pressure on the CAD with the pair creeping back to 1.3160 levels Tuesday. A lack of Canadian economic data will give the US Dollar the upper hand, expect some volatility with US Core Durable Goods and Unemployment figures later in the week. I would expect to see a rise back to around 1.3200 this week.

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