FX News

Market Overview
-Extended long weekend in the USA for Independence Day Holiday
-RBA Rate Decision
-PMI Data releases across Asia, Europe and the USA
-US Labour market reports, culminating in Non-Farm Payrolls, Friday

This week is a shortened trading week, as the US Independence Day holiday, means US markets remain effectively closed until Wednesday. Local markets will be focused on the RBA rate decision and then attention will turn back on US markets and more particularly the labour market. Major Labour market reports will be released during this coming week, including the Challenger, ADP, Jolts and culminating in the all-important Non-Farm Payrolls, Friday. The Fed is looking for the labour markets to ease considerably, before the interest rate rises can be dispensed with.

The EUR has been very stable since the close of the Central Bankers meeting in Portugal, hosted by the ECB. The ECB led the mantra, ‘higher for longer’, driving the narrative of a serious war on inflation. The ECB is well behind most other Central Banks, on the interest rate curve, thus has plenty of latitude for higher interest rates.

Current Level: 0.6095 (1.6405)
Resistance: 0.6170 (1.6210)
Support: 0.6040 (1.6555)
Last weeks Range: 0.6060-0.6100 (1.6500-1.6390)

One major Western economy that suffers greater inflationary pressures than Australia, is the UK. This has allowed the interest rate differential between the GBP and the AUD to grow, making the GBP more attractive. The cross rate remains relatively stable, despite this, although todays RBA decision may cause some temporary flux.

Current Level: 0.5240 (1.9080)
Resistance: 0.5285 (1.8920)
Support: 0.5190 (1.9270)
Last Weeks Range: 0.5200-0.5240 (1.9230-1.9080)

The RBA meets today to determine interest rates and monetary policy. The pause in rate rises may well be short-lived, as inflationary pressures force the Central Banks to act. The RBA is caught between ‘a rock and a hard place’ with extreme political pressure, to leave rates unchanged, while inflation forces action. The reluctance to act may result in mixed messages, in the narrative, but the action will make the banks position clear. The AUD will trade around 0.6650, prior to the decision later today.

Current Level: 0.6645
Resistance: 0.6690
Support: 0.6580
Last Weeks Range: 0.6600-0.6640

The RBA meets today to determine interest rates and monetary policy. The pause in rate rises may well be short-lived, as inflationary pressures force the Central Banks to act. The RBA is caught between ‘a rock and a hard place’ with extreme political pressure, to leave rates unchanged, while inflation forces action. The reluctance to act may result in mixed messages, in the narrative, but the action will make the banks position clear. The AUD will trade around 0.6650, prior to the decision later today.

Current Level: 0.5635 (1.7745)
Resistance: 0.5685 (1.7590)
Support: 0.5575 (1.7940)
Last Weeks Range: 0.5580-0.5630 (1.7920-1.7760)

UK inflation levels are highest of all the major Western economies and this is pushing extreme cost-of-living pressures. The Bank of England has accepted the challenge and imposed further interest rate rises, driving differentials and making the British Pound an attractive destination. The rising interest rates will inevitably cause damage in the British housing sector as mortgage rates spiral upwards.

Current Level: 0.4840 (2.0660)
Resistance: 0.4900 (2.0410)
Support: 0.4800 (2.0835)
Last Weeks Range: 0.4800-0.4830 (2.0835-2.0700)

The NZD bounced back against the AUD this week, but all will hinge on the RBA’s interest rate decision Tuesday. Inflation is a big problem and will probably compel the Central Bank to further raise interest rates, thus reducing the interest rate differentials, adding to downside pressures on the cross-rate.

Current Level: 0.9240 (1.0825)
Resistance: 0.9280 (1.0775)
Support: 0.9150 (1.0930)
Last Weeks Range: 0.9140-0.9220 (1.0940-1.0845)

Market confidence was on the rise, despite Western Central Banks hawkish monetary policy statements, resulting in equities surging to near record levels. Sentiment is strong and this allowed the reserve to soften and the NZD bounced back strongly to 0.6150. A shortened trading week in the USA, due to an extended Independence Day holiday, will result in an intense close to the trading week.

Current Level: 0.6145
Resistance: 0.6200
Support: 0.6050
Last Weeks Range: 0.6060-0.6130

Tuesday July 4
All Day CAD Bank Holiday
2:00am USD ISM Manufacturing PMI
Previous 46.9
2:00am USD ISM Manufacturing Prices
Previous 44.2
4:30pm AUD Cash Rate
Forecast 4.10%
Previous 4.10%
4:30pm AUD RBA Rate Statement

Wednesday July 5
All Day USD Bank Holiday
All Day All OPEC Meetings

Thursday July 6
6:00am USD FOMC Meeting Minutes
1:30pm AUD Trade Balance
Previous 11.16B Read more

Globally Central Banks are being forced into hawkish monetary policy, to tighten up the liquidity in the system and slow down inflationary growth. The Bank of England and ECB have confirmed further rate rises are on the way. The recession in Europe is killing demand and the Chinese recovery remains restrained, thus impacting commodity prices and the associated currencies.

All the attention now turns to tonight’s UK GDP number and the US PCE inflation indicator. The Fed’s Bank Stress tests passed with flying colours, but German inflation has turned north again, and any hint of a reversal in the US PCE number, will have dramatic consequences. Commodity currencies are feeling the impact of slower demand and recessionary pressures enveloping Europe and spreading around the world.