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Key Points:

• NZ House Prices are set to keep falling according to a Reserve Bank report, to more sustainable levels – the fallout from negative consumer sentiment and higher borrowing costs
• US Federal Reserve hiked their interest rate to 4.0%, the highest it’s been since December 2007
• The Bank of England hiked their interest rate to 3.0% from 2.25% in a dovish review with Bailey saying the shock to the economy from the Ukraine war was bigger than the carnage seen in the 1970’s 
• Hong Kong Central Bank raises base cash rate by 75 points to 4.25% 
• Russia has agreed to re-join the Ukraine grain deal in a deal brokered by the UN and Turkey that allows the shipment of millions of tons of grain to pass via the Black Sea
• China October Manufacturing PMI 48.4 vs prior 49.3 with covid cited as the culprit
• The Reserve Bank of Australia raises interest rates 25 points to 2.85%
• The US Dollar (USD) is the strongest currency this week while the British Pound (GBP) has been the worst performer.

Tuesday 01/11
4:30PM, AUD, Cash Rate
Forecast: 2.85%
Previous: 2.60%
4:30PM, AUD, RBA Rate Statement
All Day, EUR, French Bank Holiday
All Day, EUR, Italian Bank Holiday
9:30PM, AUD, RBA Gov Lowe Speaks

Wednesday 02/11
3AM, USD, ISM Manufacturing PMI
Forecast: 50
Previous: 50.9
3AM, USD, JOLTS Job Openings
Forecast: 9.75M
Previous: 10.05M
10:45AM, NZD, Employment Change q/q
Forecast: 0.50%
Previous: 0.00%
10:45AM, NZD, Unemployment Rate
Forecast: 3.20%
Previous: 3.30% Read more

Early week shakes in the Euro (EUR), Australian Dollar (AUD) were replaced by a round of risk on flow, the Aussie clawing back early losses to reach 0.6485 (1.5420) overnight. German Manufacturing wasn’t so Euro supportive showing a significant downturn in the Eurozone economy with the steepest output loss since late 2013. Australian CPI for the September quarter came in at 1.8% up from the predicted 1.6% and snowballing the year-on-year figure from 6.1% to a whopping 7.3%. CPI is now forecast to peak at around 7.5% late this year before dropping in 2023.

Current Level: 0.6433 (1.5544)
Resistance: 0.6515 (1.5700)
Support: 0.6382 (0.6485)
Last Weeks Range: 0.6382-0.6485 (1.5418-1.5668)

UK CPI is on the rise again back to 10.1% in September after dipping briefly to 9.9% in August. The largest contribution to rising costs was in food -namely oils, fats and dairy products. Also rising energy costs fuelled by the cost of the Russia-Ukraine war and the Bank of England’s loose monetary policy. The British Pound (GBP) dipped to 0.5660 (1.7670) to end the week after Liz Truss’s six-week chaotic reign came to an end. Markets keenly await the new PM Sunak’s economic strategy, the Pound feeling better about recent events trading back to 0.5580 (1.7920) into Thursday. Earlier Australian CPI was a huge miss rising to 1.8% q/q and 7.3% y/y up from 6.1% raising questions of bigger forecasts to rate hikes needed from the RBA.

Current Level: 0.5581 (1.7917)
Resistance: 0.5620 (1.8460)
Support: 0.5420 (1.7800)
Last Weeks Range: 0.5495-0.5659 (1.7668-1.8197)

The Australian Dollar (AUD) continues to climb off the recent low of 0.6185 against the US Dollar (USD) clocking 0.6490 this morning as markets enjoy the recent bout of “risk on”. A softer big dollar is also helping with improvements, we note recent moves may come up against resistance around the 0.6550 zone. The recent Fed pivot on policy with suggestions they may ease “hard” policy is doing the rounds and creating demand for risk assets. US advance GDP Friday for the September quarter is forecast to come in at 2.3%- markets will pay close attention to the release. US buyers should consider current levels.

Current Level: 0.6487
Resistance: 0.6750
Support: 0.6160
Last Weeks Range: 0.6199-0.6387

The Euro was slammed towards the weekly close against the New Zealand Dollar (NZD), the cross finishing up around the 0.5850 (1.7100) zone after starting the week at 0.5715 (1.7500). A risk off Monday saw the kiwi give back gains back to 0.5750 (1.7400) before settling around 0.5780 (1.7300) in this morning trade. Against the USD the Euro broke through parity posting a 6-week high. Later in the week we have the ECB policy statement and rate release, predictions of a rise from 1.25% to 2.0% widely expected, a sizable rise in line with efforts to bring down ballooning 9.9% inflation. The kiwi will need a few big days to break the Euro bull run trend.

Current Level: 0.5774 (1.7319)
Resistance: 0.5865 (1.7550)
Support: 0.5700 (1.7050)
Last Weeks Range: 0.5698-0.5851 (1.7089-1.7548)

The cost of living in the UK got harder Friday after CPI came in at 10.1% y/y up from 9.9% in August returning to the 40 year high reached in July. The biggest contribution was in food rises. The British Pound (GBP) depreciated post the release against the New Zealand Dollar (NZD) to 0.5110 ( 1.9560) where it closed for the week. Rishi Sunak is the UK new prime minister after months of carnage- he will lead the conservative party replacing Liz Truss who was only there for 44 days, Sunak will pilot a country struggling and divided by an economic downturn. The GBP pushed up Monday to 1.9950 (0.5010) in the face of rising equity prices, markets clearly seeing Sunak with more integrity and reliability. Meanwhile UK Manufacturing came in poor at 45.8 well under the 47.9 predicted reflecting poor output. We expect the prior low of 0.4925 (2.0300) should hold over the week.

Current Level: 0.5009 (1.9964)
Resistance: 0.5100 (2.0300)
Support: 0.4925 (1.9600)
Last Weeks Range: 0.4922-0.5112 (1.9561-2.0316)

The Australian Dollar (AUD) has bounced back off 0.9090 (1.10) this week against the New Zealand Dollar (NZD) reaching 0.8950 (1.1170) late Wednesday. Yesterday’s Aussie CPI release gave the Aussie a boost coming in much higher than predicted at 7.3% y/y off 6.1%- q/q 1.80% after 1.6% was forecast. This is a whopper release, not unpredictable given the latest set of Aussie date releases. From here we look ahead to Tuesday’s RBA rate release and policy statement with some analysts suggesting the RBA will hike rates another 0.5% by the end of 2022 with another meeting in early December to consider. We see the cross dropping to 0.8900 (1.1235) levels over the next few days.

Current Level: 0.8972 (1.1135)
Resistance: 0.9100 (1.1400)
Support: 0.8770 (1.0990)
Last Weeks Range: 0.8938-0.9100 (1.0988-1.1187)

The New Zealand Dollar (NZD) started the week on the backfoot against the US Dollar (USD) dropping to 0.5650 returning profits from late Friday’s squeeze to 0.5770. Risk on sentiment improved amid broad based big dollar weakness into 0.5830. The Fed announced they are well into the late stages of their tightening cycle helping to rally stocks and risk products across the board. Yesterday morning something rare happened in the US treasury yield prices- the 3 year surpassed the 10-year highlighting discouraging signs for the US economy suggesting a recession is close. Meanwhile US consumer confidence data plunged in October, also a barometer for how the Fed goes about tightening policy. We think the NZD may retest 0.5850 resistance this week.

Current Level: 0.5822
Resistance: 0.6000
Support: 0.5650
Last Weeks Range: 0.5546-0.5763

Market Overview

Key Points:

• Rishi Sunak has been appointed by King Charles III as the new prime minister of Great Britain and replaces Liz Truss only 44 days in. Sunak is the first Hindi prime minister and the youngest for more than 200 years at the age of 42
• Most NZ economists believe NZ inflation has topped out
• Bank of Canada’s Macklem expects to see growth near zero over the next few quarters
• The Peoples Bank of China sold US Dollars Tuesday to support the declining Yuan
• Australian Inflation soars through 7.0% y/y with questions being raised as to where this leaves the RBA
• The British Pound (GBP) has been the strongest currency this week while the US Dollar (USD) has been the worst performer Read more