Directfx admin

Confidence in the UK economy and the British Pound (GBP) are fast eroding with the economy expected to accelerate its interest rate hiking to a near high 6.0%. Monday’s trip to the 0.5525 (1.8100) region was unpredicted but a reflection on big picture economic issues coming to the surface. The Pound (GBP), New Zealand Dollar (NZD) rebounded into Tuesday to 0.5250 (1.9040) highlighting current volatility present in the market. It may take a while before we see real GBP performance return, so we predict the currency to remain unsupported for the next while especially while debate over fiscal policy is sorted over the coming weeks. No data to publish this week for the cross.

Current Level: 0.5248 (1.9054)
Resistance: 0.5370 (1.9650)
Support: 0.5090 (1.8620)
Last Weeks Range: 0.5159-0.5306 (1.8845-1.9382)

History in the making- the Australian Dollar (AUD) poked its head above long-term resistance at 1.1380 (0.8790) Monday reaching 1.1460 (0.8725) , the first time we have seen prices this low since November 2013. The Aussie continues to extend its dominance outperforming the kiwi 9 out of the last 10 weeks. Clearly markets still believe the Aussie is in better shape than what’s been going on in New Zealand. Looking ahead we have Governor Orr speaking Friday. As we have been saying- more of the same is in store, buyers of AUD should consider options.

Current Level: 0.8749 (1.1419)
Resistance: 0.8580 (1.1500)
Support: 0.8700 (1.1300)
Last Weeks Range: 0.8794-0.8935 (1.1191-1.1371)

US Dollar (USD) strength reigned supreme coming off Monday’s open with the index up 0.2% running the New Zealand Dollar (NZD) down to fresh lows at 0.5620. Fed officials have reaffirmed their hawkish tone to keep monetary policy conditions tight, adding fuel to the fire. Interestingly US data of late fails to support such a theme of a slowdown which would soften the Fed’s view. The cross is perilously close to breaking below the early covid March 2020 zone around 0.5600 on the chart. A bunch of Fed officials speak towards the close of the week and we have final US GDP printing Friday. Downside bias remains.

Current Level: 0.5628
Resistance: 0.5980
Support: 0.5470
Last Weeks Range: 0.5731-0.5999

FX Update:

Many equity investors have been in denial of late thinking the recent rally recovery will continue back to the old highs of mid-August. So far as we head into the back end of the year it hasn’t happened. With the Federal Reserve continuing to raise rates- this morning another 75 points to 3.25% it’s tough to be overly hawkish on equities. In efforts to stop rising inflation the Fed forecast more sizable hikes to come, the wash up- the big boys are preferring to buy Bonds ahead of stocks. The S&P index is down more than 10% in the past month and 21% off its 2022 high with other indices also struggling. You can only steer the boat towards the storm for so long before you need to batten down the hatches.

Key Points:

The US Federal Reserve raised rates to 3.25% yesterday with forecasts of a continued aggressive stance with the Fed indicating they will hike to 4.4% by next year
The Bank of England (BoE) raised their interest rate to 2.25% this morning, the highest level in 14 years
Putin has mobilised more troops into Ukraine
Governor Lowe says the RBA is getting closer to “neutral” monetary policy, with the economy weak they will not have to hike as much- perhaps only 25 points at their October 4th meeting
Westpac Consumer Confidence rose in the September quarter 87.6, up from the June lows but it’s still pessimistic
The Bank of Japan (BoJ) kept its ultra-easy policy yesterday with no change to their cash rate of minus 0.1%. Japanese consumer inflation 3% in August above the bank’s 2.0% target. The Japanese Yen fell briefly to a 24 year low against the greenback highlighting the steep divergence between the US and Japan economies
Chinese GDP forecast for 2023 has been slashed from 5.3% to 4.5%
The struggling Japanese Yen (JPY) is the strongest currency this week while the New Zealand Dollar (NZD) is in long way last

The Australian Dollar (AUD) reversed off 0.6680 (1.4970) the July 2022 low midweek pushing back to 0.6765 (1.4780) in morning trading as risk improved. Putin spooked Euro buyers by announcing he was mobilising more troops into Ukraine. Consumer confidence in the eurozone is at the lowest on record falling 28 points below the 2020 level. Also on the wires was ECB Guindos which hasn’t helped by delivering a fairly downbeat view of things to come. Lagarde said more hikes are necessary to tackle inflation – this will be “the fastest change in rates in our history”. We have French and German Manufacturing data releasing tonight which isn’t expected to be pretty. We may see the Aussie edge higher and retest 0.6790 (1.4730) prior to the close.

The current interbank midrate is: AUDEUR 0.6755 EURAUD 1.4803
The interbank range this week has been: AUDEUR 0.6684- 0.6777 EURAUD 1.4754- 1.4960

The Bank of England (BoE) is the latest central bank to hike their interest rate, this morning’s 50 point move to 2.25% marked the 7th consecutive rise. This is the highest cash rate in 14 years, however the hike was seen as less aggressive than some were predicting. Of note 3 BoE members voted for a 75-point hike and 1 for only 25 points so voting was split. Meeting their 2.0% inflation target in a way which will sustain growth and employment is key. The British Pound (GBP) weakened post release to 1.6940 (0.5905) agst the Australian Dollar (AUD) but not outside recent range bound action. The energy crisis and concerning UK economic data may lead to further downside moves in the GBP.

The current interbank midrate is: AUDGBP 0.5901 GBPAUD 1.6946
The interbank range this week has been: AUDGBP 0.5846- 0.5914 GBPAUD 1.6907- 1.7105

It’s not looking too pleasant out there for US Dollar (USD) buyers with the Australian Dollar (AUD) depreciating another week clocking 0.6570 on its way to a fresh May 2020 low. The Federal Reserve hiked its cash rate by 75 points to 3.25% for the second time running as they continue with an aggressive tightening cycle to try and curb rising inflation. Fed chair Powell saying there will be more economic pain before inflation is back on target with a likely recession over the next 12 months. We expect a further hike of 75 points at their November meeting and another 50 points in December. Bottom line- as long as the Fed keeps raising rates and creating more uncertainty and a “flight to safety” risk outlook over the next few months, we could see more downside moves eventuate in the pair.

The current interbank midrate is: AUDUSD 0.6647
The interbank range this week has been: AUDUSD 0.6573- 0.6747

The New Zealand Dollar (NZD) fought back off the Feb 2022 low of 0.5900 (1.6950) midweek to enter Friday at 0.5945 (1.6820) improving off the back of a slight improvement in risk conditions. News that the Russian President Putin was announcing further mobilisation of forces into Ukraine hasn’t been overly detrimental to the NZD/EUR cross however the EUR was down against other crosses, especially the greenback. ECB’s Guindos also hasn’t helped the EUR after delivering a negative economic judgement of things to come. Huge support seen on the chart at 0.5775 (1.7320) this area should hold for a while.

The current interbank midrate is: NZDEUR 0.5942 EURNZD 1.6829
The interbank range this week has been: NZDEUR 0.5897- 0.5992 EURNZD 1.6688- 1.6955

The New Zealand Dollar (NZD) has underperformed over the week agst the British Pound (GBP) drifting to 0.5160 (1.9380) early this morning before getting a boost from the Bank of England Cash rate announcement, with prices trading back towards 0.5200 (1.9240) mid-morning. The Bank of England (BoE) hiked their interest rate this morning 50 points to 2.25% marking the 7th consecutive rise. This is now the highest rate since 2008, however the hike was seen as less aggressive than some were predicting with only 3 BoE members voting for a 75-point hike and 1 for 25 points, so voting was not conclusive. The Bank has also agreed to start reducing the stock of UK Govt Bonds held in Asset Purchase Facility financed by the issuance of central bank reserves. This equates to over 80 billion over the next 12 months. Ongoing energy woes and incoming concerning UK economic data may lead to further upside moves in the kiwi, we certainly don’t believe the 0.5130 (1.9500) zone will be broken any time soon.

The current interbank midrate is: NZDGBP 0.5190 GBPNZD 1.9267
The interbank range this week has been: NZDGBP 0.5158- 0.5255 GBPNZD 1.9026- 1.9384

The New Zealand Dollar (NZD) has posted a new low Thursday reaching 0.5800 against the preferred “safe haven” US Dollar (USD) as things start to get ugly. The Federal Reserve raised their cash rate 75 points to 3.25% yesterday sinking the kiwi further. To be fair the rot had well and truly set in by the announcement, investors perhaps realising a recovery of sorts is becoming less likely. Consumer sentiment in the US is not looking flash with numbers showing they are close to all-time lows. Meanwhile it was good to see a pick-up in equity markets overnight and small momentary reversal take place with prices back at 0.5880. Downward pressures remain in the cross with massive support at 0.5650 rapidly coming into view.

The current interbank midrate is: NZDUSD 0.5847
The interbank range this week has been: NZDUSD 0.5801- 0.5999