FX News

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.

The RBA had instituted a pause in interest rate rises, but heavy inflationary pressures, will ensure the Central bank returns to a more hawkish approach, to monetary policy. The heavily indebted nature of the Australian economy means this will have an impact on disposable income, spending and the consumer. The rise in the reserve currency, following hawkish statements from the Federal Reserve Chairman Powell, has seen the AUD tumble back to 0.6600.

Current Level: 0.6625
Support: 0.6550
Resistance: 0.6700

The UK inflation number was expected to fall dramatically, but instead remained stubbornly high, forcing the Bank of England to raise rates a further 50 basis points. In Europe inflation had been falling dramatically, until this week’s release of German inflation numbers. The German number actually reversed course, and rose, from 6.1% to 6.4%. The ECB has continued to commit to more rate rises, and joins all other major Central Banks, with a hawkish monetary policy stance.

Current Level: 0.5595 (1.7873)
Support: 0.5550 (1.8018)
Resistance: 0.5650 (1.7700)

The UK inflation number was expected to fall dramatically, but instead remained stubbornly high, forcing the Bank of England to raise rates a further 50 basis points. In Europe inflation had been falling dramatically, until this week’s release of German inflation numbers. The German number actually reversed course, and rose, from 6.1% to 6.4%. The ECB has continued to commit to more rate rises, and joins all other major Central Banks, with a hawkish monetary policy stance.

Current Level: 0.4820 (2.0747)
Support: 0.4800 (2.0833)
Resistance: 0.4900 (2.0410)

The NZD underperformed the AUD over the last week, as commodity currencies struggled recessionary pressures and the insipid economic recovery in China. The cross rate lost a ‘Big Figure’, falling from 0.9250, to 0.9150. Economic conditions in NZ remain challenging, in a high interest rate environment. NZ Business Confidence shows signs of improvement, but remains heavily depressed.

Current Level: 0.9184 (1.0888)
Support: 0.9121 (1.0965)
Resistance: 0.9250 (1.0810)

The NZD crashed back to earth over the last week, heading back towards 0.6000, after reaching up as high as 0.6200. The Central Bank meeting in Sintra, Portugal, was extremely hawkish and the message was, rates were going to be ‘higher for longer’. Inflation remains the key driver of interest rates and this is forcing recessionary economic conditions, thus undermining commodity currencies.

Current Level: 0.6086
Resistance: 0.6200
Support: 0.6000

The Euro (EUR) extended moves on the Australian Dollar (AUD) Monday to 0.6112 (1.6360) despite taking on water from recent terrible data. Softer Eurozone PMI and French and German manufacturing releases were all below expectation with the German ifo – its most weighty economic indicator failing to impress after slow Chinese re-opening and policy tightening dampened sentiment. This week’s Australian CPI y/y release holds interest with predictions this could come in higher than markets are expecting.

Current Level: 0.6120 (1.6339)
Resistance: 0.6180 (1.6500)
Support: 0.6060 (1.6180)
Last Weeks Range: 0.6121-0.6294 (1.5888-1.6336)

The British Pound (GBP), Australian Dollar (AUD) looks to be consolidating around the 0.5250 (1.9050) area into Tuesday after a decent move from 0.5375 (1.8600) last week. Sitting close to the long-term low at 0.5200 (1.9225) we believe further GBP flow should push the pair through this level in the coming hours/days for the first time since the Brexit vote in 2016. The key release of the week is Aussie CPI y/y which has potential to tick higher than the current 6.8% and question recent RBA narrative.

Current Level: 0.5253 (1.9036)
Resistance: 0.5350 (1.9180)
Support: 0.5215 (1.8700)
Last Weeks Range: 0.5237-0.5380 (1.8586-1.9094)

Major Announcements last week:
UK CPI rises from 8.4% to 8.7% y/y.
Bank of England hike cash rate 50 points from 4.50% to 5.0%.
UK Retail Sales prints at 0.3% vs -0.2% expected.
French and German manufacturing prints poor losing recent momentum.

The Australian Dollar (AUD), USD Dollar (USD) cross has consolidated around 0.6670 levels into Tuesday after large moves last week from 0.6870. The Aussie being hit from lower metal prices, poor sentiment in China and growth prospects. Growth has been revised lower and is expected to slow heading into the 4th quarter dragged lower by weakness in consumption and the chances of the economy falling into a recession, This week’s inflation report should give us clues as to price pressures and how the RBA could react. We expect the central bank to hike in July, but the decision isn’t a given. The key fibonacci level at 0.6670 may lend support to AUD upside.

Current Level: 0.6678
Resistance: 0.6800
Support: 0.6570
Last Weeks Range: 0.6661-0.6882