FX Update: Weak Chinese Data Softens Risk Tone

Market Overview

Key Points:

• Chinese economic outlook spooks markets Monday with risk assets down across the board
• China’s jobless rate for 16–24-year-olds has hit its highest level ever recorded at 19.9%
• We are expecting similar rhetoric at Wednesday’s RBNZ meeting with the central bank predicted to hike rates from 2.5% to 3.0%. It’s highly probable we could see rates spike around the 3.75%, mark with another 50-point rise in October and more in November
• The New Zealand Dollar (NZD) and the Australian Dollar (AUD) were the biggest movers last week with the US Dollar (USD) losing ground post the CPI release
• Japan’s second quarter growth came in at 0.5% from 0.7% predicted avoiding slipping formally into recession after first quarter results were -0.2%
• New highs in US stocks were reported at Friday’s close with the Nasdaq leading the way up 1.5% reaching 13026
• UK Prelim GDP -0.1% vs -0.2% expected, prior was 0.8% as household consumption declines
• Crude oil is down over 3.0% overnight amid a statelate in the Iran deal with Tehran
• European gas prices have extended 10.7% on the day making benchmark TTF its highest close ever Read more

AUD/EUR Conversion:

The Australian Dollar (AUD), Euro (EUR) cross hovers around the April 2017 high at 0.6915 (1.4460) this morning after a large run to the topside last week. Key big figure resistance and the physiological level of 0.7000 (1.4285) will be tough to conquer. However, if we see lower Australian employment data published tomorrow anything is possible. The Euro came under pressure to close out the week with energy crisis headlines seen as the driving force behind the weakness with French and German electricity prices reaching record highs. A heat wave across the European continent and gas remains issues in the region moving forward and could hinder EUR bidding.

Current Level: 0.6904 (1.4484)
Resistance: 0.7000 (1.5280)
Support: 0.6545 (1.4300)
Last Weeks Range: 0.6784-0.6946 (1.4396-1.4739)

AUD/GBP Conversion:

The Australian Dollar (AUD) pushed through long range resistance last week at 0.5825 (1.7170) to post a fresh November 2017 high of 0.5875 (1.7020) at the close. Monday price extended to 0.5880 (1.7000) before the Pound recovered on risk aversion to 0.5815 (1.7200) into Tuesday. Growth in the UK fall to -0.1% in the second quarter of 2022 coming in slightly better than forecast of -0.2%. However, it’s still a negative read which puts the British economy threatening a possible recession in the coming months. Cleary growth has stagnated as the squeeze on “real” income and higher interest rates takes a toll. UK CPI is expected to release around 9.4% tomorrow, some predicting this could be much higher. Of note on the calendar we have Aussie employment Thursday with the unemployment rate expected to remain stable at 3.5%. Buying GBP still looks extremely attractive around these levels.

Current Level: 0.5820 (1.7182)
Resistance: 0.5890 (1.7800)
Support: 0.5620 (1.6970)
Last Weeks Range: 1.5721-0.5873 (1.7025-1.7479)

AUD/USD Conversion:

Early Monday poor Chinese data took the Australian Dollar (AUD) lower from the weekly open at 0.7120 to 0.7010 this morning as markets reverted to “risk off”. The AUD has had a good run to new highs of late based on Fed speak, lower CPI read and renewed optimism in stocks. The aggressive selloff in the US Dollar (USD) as the Fed re-price rate hike expectations has impacted mostly with the Fed to start easing up on policy. The risk on moves may be short lived, buyers of the greenback should consider while still able to buy above the 0.7000 mark. This week’s Aussie job’s numbers presents key data with unemployment expected to post around the current 3.5%. Watch out for US Retail Sales as well Thursday, a fundamental measure of economic performance, anything less than 0.1% could weaken the pair.

Current Level: 0.7018
Resistance: 0.7140
Support: 0.6850
Last Weeks Range: 0.6898-0.7135

NZD/EUR Conversion:

The Euro remained on the backfoot last week falling against the New Zealand Dollar (NZD) to 0.6320 (1.5830) as several factors continue to take a heavy toll on the European economy. Spurring gas prices, inflation driven products and the war in Ukraine have all held up the EUR over recent weeks from creating any reasonable momentum not just agst the NZD but across the board of currencies. The EUR kicked back Monday to 0.6250 (1.6000) levels but with the RBNZ predicted to raise rates 50 points tomorrow we may see further upside bias eventuate.

Current Level: 0.6256 (1.5984)
Resistance:0.6345 (1.6320)
Support: 0.6130 (1.5760)
Last Weeks Range: 0.6126-0.6313 (1.5839-1.6322)

NZD/GBP Conversion:

The English Pound (GBP) has extended losses through pivotal support at 1.9000 (0.5265) against the New Zealand Dollar (NZD) reaching 1.8720 (0.5340) overnight before recovering to 1.8940 (0.5280) the weekly open. The UK inflation rate jumped to 9.4% y/y in June, the highest it’s been since 1982 above estimate of 9.3% and May’s 9.1%. Pressures on fuel and food prices remain an issue with petrol prices climbing 18% per litre in June, the largest single month jump since 1990. July’s forecast out tomorrow is predicted to be around 9.4% with some predicting further rises into the 10’s. The highlight on the calendar this week is the RBNZ cash rate release with markets widely predicting a 50-point hike. Talk around further rises is our main focus and should drive price in the pair either way.0.5350 (1.8700) Looks solid resistance on the chart, the kiwi would be doing well to make a clean break higher.

Current Level: 0.5274 (1.8960)
Resistance: 0.5240 (1.9120)
Support: 0.5230 (1.8730)
Last Weeks Range: 0.5164-0.5337 (1.8736-1.9362)

NZD/AUD Conversion:

Both the New Zealand Dollar (NZD) and Australian Dollar (AUD) look equally volatile in current markets with yesterday’s poor Chinese data and US Dollar outflows not really impacting this pair. Sideways trading around the 0.9050 (1.1050) area remains the theme. The upcoming RBNZ rate announcement tomorrow could shake things up, the RBNZ widely predicted to hike interest rates from 2.5% to 3.0% in efforts to bring down rising inflation. Although mostly priced in the kiwi may spike on the news- anything above 0.9000 still looks good buying.  Aussie jobs numbers prints towards the end of the week.

Current Level: 0.9060 (1.1033)
Resistance: 0.9100 (1.1170)
Support: 0.8950 (1.0990)
Last Weeks Range: 0.8989-0.9089 (1.1016-1.1124)

NZD/USD Conversion:

The New Zealand Dollar (NZD) outperformed the US Dollar (USD) last week with the run up to 0.6460 a 10-week high. Monday’s risk averse tone has taken price back to 0.6350 this morning when it looks to have consolidated. US CPI surprised markets coming in at 8.5% from the predicted 8.7 much lower than the previous month’s 9.1% 40 year high, offering optimism to risk buyers as the Fed start thinking about re-pricing their upcoming rate hike forecasts. Greenback outflow Monday as poor Chinese data in the form of Industrial production- 3.8% vs 4.6% expected and weaker employment took the kiwi lower. The cross is still trading within its 6-week bull channel but be weary of a continuation of further movement to the downside and a break though channel support at 0.6280. RBNZ is tomorrow with a 50 point move higher to 3.0% widely expected.

Current Level: 0.6360
Resistance: 0.6550
Support: 0.6320
Last Weeks Range: 0.6228-0.6478

Calendar of Economic Releases

Monday 15/08
2:00pm, CNY, Retail Sales y/y
Forecast: 5.00%
Previous: 3.10%
All Day, EUR, French Bank Holiday
All Day, EUR, Italian Bank Holiday

Tuesday 16/08
12:30am, USD, Empire State Manufacturing Index
Forecast: 5.1
Previous: 11.1
1:30pm, AUD, Monetary Policy Meeting Minutes

Wednesday 17/08
12:30am, CAD, CPI m/m
Previous: 0.70%
12:30am, CAD, Common CPI y/y
Previous: 4.60%
12:30am, CAD, Median CPI y/y
Previous: 4.90%
12:30am, CAD, Trimmed CPI y/y
Previous: 5.50%
1:30pm, AUD, Wage Price Index q/q
Forecast: 0.80%
Previous: 0.70%
2:00pm, NZD, Official Cash Rate
Forecast: 3.00%
Previous: 2.50%
2:00pm, NZD, RBNZ Monetary Policy Statement
2:00pm, NZD, RBNZ Rate Statement
3:00pm, NZD, RBNZ Press Conference
6:00pm, GBP, CPI y/y
Previous: 9.40% Read more

AUD/EUR Conversion:

As with most currency pairs, The AUD/EUR has enjoyed a move higher over the last 72 hours on the back of a weaker USD globally. Inflation remains at the forefront of all market concerns, and the recent “slow down “in the USA CPI number has seen the USD weaken across the board, lending support to all other currencies. The pending winter energy crisis in Europe, amongst the ongoing Russia-Ukraine conflict, and the ever-increasing Western European sanctions all combine to increase the pressure on the general cost of living which will continue to keep the lid on any strong move higher in the EUR/USD. German Inflation data out during the week came in at a record 7.5 %, thus putting extra strain on the Regions most powerful economy. Australian Financial market activity has remained relatively subdued this week, with the China-Taiwan tensions in the region keeping people on edge. Some positive news from a surprisingly improved Australian business confidence figure, coupled with the softer USD, has meant the AUD/EUR cross ends the week on its highs, around .6850 level. This remains great buying levels short term with any move to .6900 worth a look for longer term hedging requirements.

Current Level: 0.6880
Resistance: 0.6910/0.6940
Support: 0.6790/0.6835
Last Weeks Range: 0.6808/0.6896