FX News

The RBNZ Rate Decision is scheduled for Wednesday and they are expected to follow the RBA and Federal Reserve, hitting the rate rise ‘pause button’. Inflation has been tumbling lower across Europe, but remains stubbornly high in Germany, while Core inflation has been persistent in the USA. NZ Inflation has been very high and cost of living pressures must add to pressure on the RBNZ to tame inflation. Raising rates hits the consumer hard, through mortgage rates, so therein lies the problem. The RBNZ is ‘caught between a rock and a hard place’. The NZD is trading around 0.6200 in the lead up to the RBNZ decision.

Current Level: 0.6213
Resistance: 0.6230
Support: 0.6110
Last Weeks Range: 0.6120-0.6205

Monday July 10
1:30pm CNY CPI y/y
Forecast: 0.20%
Previous: 0.20%
1:30pm CNY PPI y/y
Forecast: -5.00%
Previous: -4.60%

Tuesday July 11
3:00am GBP BOE Gov Bailey Speaks
1:30pm AUD NAB Business Confidence
Previous: -4
6:00pm GBP Claimant Count Change
Forecast: 20.5K
Previous: -13.6K
6:00pm GBP Average Earnings Index 3m/y
Forecast: 6.80%
Previous: 6.50%
9:00pm EUR German ZEW Economic Sentiment
Forecast:-10.7
Previous: -8.5
11th-15th CNY New Loans
Forecast: 2300B
Previous: 1360B Read more

The ECB remains firmly committed to their ongoing hawkish monetary policy, with the mantra, ‘higher for longer’. The Central Bank has some latitude, as their rates trade at a severe discount, to the UK and USA. PMI data in Europe has been extremely weak and reflects the recessionary economic conditions, as softer energy prices aid their economic recovery.

Current Level: 0.6083 (1.6440)
Resistance: 0.6170 (1.6210)
Support: 0.6025 (1.66)
Last Weeks Range: 0.6050-0.6140 (1.6530-1.6290)

The Bank of England remains firmly committed to stamping out inflation, which is the highest in all major Western economies. This has ensured that upward pressure on interest rates supports the GBP. The reserve currency is receiving support from US economic data, so that will balance British currency volatility.

Current Level: 0.5200 (1.9230)
Resistance: 0.5290 (1.8905)
Support: 0.5175 (1.9325)
Last Weeks Range: 0.5180-0.5260 (1.9305-1.9000)

The RBA hit the monetary ‘pause button’ and left rates unchanged. This surprised many pundits, but aped the Federal Reserve, in their recent monetary decision. This is a result of extreme political pressure, rather than any statistical relief on the inflation front. The Fed minutes indicated that rates would continue to rise in the USA and the latest labour markets reports, from the US, only add to the likelihood. The AUD has plunged, from above 0.6700, back to 0.6600, with downside pressure prevalent.

Current Level: 0.5200 (1.9230)
Resistance: 0.5290 (1.8905)
Support: 0.5175 (1.9325)
Last Weeks Range: 0.5180-0.5260 (1.9305-1.9000)

European PMI data was weaker than expected and spread from manufacturing to the services sectors. This reflects widespread recessionary pressures, from slower demand and tighter monetary conditions. The ECB has assured markets that they are firmly committed to their ‘hawkish’ monetary policy cycle, and this has helped support the EURO. The surprise strength in the US labour market only reinforces tight monetary conditions and the mantra, ‘higher for longer’, espoused by ECB President LeGarde.

Current Level:0.5653 (1.7690)
Resistance: 0.5705 (1.7530)
Support: 0.5590 (1.7890)
Last Weeks Range: 0.5600-0.5685 (1.7860-1.7590)

UK PMI data was softer than expected, reflecting the recessionary pressures being suffered in the UK economy, because of softer global demand and extremely tight monetary conditions. The Bank of England continues to reassure markets that tight monetary policy will prevail in the war on inflation. The high interest rates support a stronger than expected British Pound, through interest rate differentials, but risk will become an existential threat.

Current Level: 0.4833 (2.0690)
Resistance: 0.4880 (2.0490)
Support: 0.4790 (2.0875)
Last Weeks Range: 0.4770-0.4820 (2.0965-2.0745)

The RBA rate decision caught many market analysts by surprise. The Bank hit the ‘pause button’ on rate rises, against expectations and bowing to political pressure. The RBA Governor Lowe is under extreme pressure to keep rates low, as Australia is an extremely heavily indebted nation. Lowe is coming to the end of his appointed term and the heat is on! The softer AUD allowed the cross rate to surge towards 0.9300. US Labour market reports of a tighter than expected labour market, drove speculation of further rate rises, to come.

Current Level: 0.9292 (1.0762)
Resistance: 0.9325 (1.0725)
Support: 0.9190 (1.0880)
Last Weeks Range: 0.9240-0.9150 (1.0825-1.0930)

The RBA interest rate decision to ‘pause’ rate rises, followed the Federal Reserve’s lead. The thought process is, to allow the long string of rate rises to permeate the economy and ascertain the impact. It did have a softening effect on Tasman commodity currencies, which accelerated with US Labour Market reports. The ADP private sector jobs report came in, at adding 497,000 extra jobs! Equities crashed and bond yields exploded, adding to support for the US Dollar, forcing the NZD back from above 0.6200, down to 0.6150.

Current Level: 0.6155
Resistance:0.6205
Support: 0.6080
Last Weeks Range: 0.6130-0.6060

Market Overview
This week has been interrupted by the US Independence Day, effective four day, long-weekend. All eyes were on the US labour markets, as the Federal Reserve is looking for this to slacken considerably, (under their tight monetary policy), to effectively contain inflation. The ADP Jobs Report was a shock number, blowing away expectations, by almost double. This was followed by a Challenger report that advised job cuts halved and a Jolts Job Report, that showed a slowing in job openings. These are not what the Fed is looking for and will probably force further rate rises, as indicated by the Fed. All eyes now focus on the Non-Farm Payroll number, to be released tonight.

Major Announcements last week:
.-Fed Minutes Release
-US Labour Market Reports
-RBA Rate Decision
-Non-Farm Payrolls