FX News

The New Zealand Dollar (NZD) has had a good week reversing last week’s losses against the English Pound (GBP) tracking to 0.5002 (1.9990) this morning. We see 3 more rate increases taking place before September from the Bank of England (BoE) as the fight against inflation continues- stubbornly holding above 10%. Manufacturing in the UK printed a 3 month low dragging the Pound lower though Thursday trading, the pair settling around the magical 0.50 (2.00) mark. Carrying the momentum through here will be key today with no data releasing. Looking ahead we have the Bank of England’s official interest rate predicted to rise from 4.25% which may favour the GBP. Resistance seen at 0.5040.

The current interbank midrate is: NZDGBP 0.4998 GBPNZD 2.0008
The interbank range this week has been: NZDGBP 0.4914- 0.5005 GBPNZD 1.9980- 2.0346

The Reserve Bank of Australia unexpectedly raised rates Tuesday 25 points to 3.85% after maintaining it at 3.6% in April, the 11th time the RBA has raised in the past year. This was motivated by the RBA’s worry of inflation which is currently 7.0%, way too high with the labour market remaining tight. The Australian Dollar (AUD) rose to 0.6715 post the release before tapering off back to 0.6640 over the following hours. The Fed also raised their interest rate to 5.25% from 5.0%, the Fed saying this ‘maybe it’ after a long run of hikes. Markets are still pricing an 85% chance that the Fed will start cutting rates by year end despite the ongoing rhetoric by the Fed. We are not sure the Aussie will carry this momentum into next week with Non- Farm Payroll releasing tomorrow morning.

The current interbank midrate is: AUDUSD 0.6990
The interbank range this week has been: AUDUSD 0.6608- 0.6716

The New Zealand Dollar (NZD) has put in a stellar performance this week- not only against the US Dollar (USD) but across the main G10 board. Rising to reach 0.6295 early today prior to dropping back to 0.6270 as I write. Fed raised their cash rate from 5.0 to 5.25, quite possibly the last hike in the long hiking cycle by the Federal Reserve, the 9th hike in a row going back to March last year. Interestingly markets are still pricing in chances around 85% that the Fed will start cutting rates by year end despite the hawkishness of ongoing rhetoric. NZ Unemployment to March remained at 3.4% after expectations of a rise to 3.5% with participation at a respectable 72.0%. The ongoing high participation rate and strength in the labour market has been a mark of very few borrowers defaulting on debt repayments with the RBNZ saying to date ‘there has been limited signs of distress in lending portfolios’. Orr’s report added the NZ banking system capital and liquidity positions were strong. Retesting 0.6300 levels looks on the cards before the weekly close, a significant run through here however looks unlikely.

The current interbank midrate is: NZDUSD 0.6290
The interbank range this week has been: NZDUSD 0.6160- 0.6297

It was all AUD action early in the week with the Australian Dollar (AUD), New Zealand Dollar (NZD) cross reaching 1.0830 (0.9233) Tuesday post RBA. A surprise hike by the central bank to 3.85% brought back AUD buyers as the AUD rallied. Australian Retail Sales printed mixed results coming in stronger in March than expected but overall data was weak as consumers adjusted to higher interest costs, the report showing the figure grew 0.4% after 0.3% was forecast. While this was the third straight month of rises, a decline of spending on discretionary goods has kept monthly sales down for several months. NZ Unemployment remained at 3.4% with the participation rate a decent 72%, Orr saying borrower defaults remained low and banks showing minimal lending stress, overall capital and liquidity positions were strong. The kiwi kicked into high gear reversing RBA moves into Friday trading downwind to around 0.9390 (1.0650). We aren’t predicting a push higher into the 0.94’s with the NZD looking a tad overbought.

The current interbank midrate is: NZDAUD 0.9387 AUDNZD 1.0650
The interbank range this week has been: NZDAUD 0.9231- 0.9415 AUDNZD 1.0621- 1.0832

Key Points:

New Zealand Dollar outperforms into Friday.
The US Federal Reserve lifted their interest rate Thursday from 5.0% to 5.25%, the Fed close to announcing a pause of their tightening policy.
US Stock Indices clock 3 day losing streak.
Bank of Canada’s Macklem: If we see inflation signs stuck above 2% they could hike again.
Chinese Caixin Manufacturing fell from 50.0 to 49.5 in April as selling cost pressures the worst in 7 years.
US Regional Banks are in the spotlight again following news PacWest Bancorp shares are down 46% overnight as the company considers “strategic alternatives”.
UK Mortgage Approvals rose in March representing the lowest level of net borrowings since June 2011
The ECB raises interest rates from 3.5% to 3.75%. Lagarde suggests the inflation outlook continues to be high and too long.
The New Zealand Dollar (NZD) has been the best performer this week while the US Dollar (USD) has been the weakest currency

Market Overview
– US authorities announced the take-over of the First Republic Bank by JP Morgan Chase. The deal includes credit line support and assistance for security losses, from the FDIC. This follows the collapse of UBS and SBV on respective sides of the Atlantic. It is the biggest bank failure since the GFC.

– The FOMC meeting this week will decide on whether the Fed will continue to raise rates. They have indicated this may be the last rate rise before they hit the ‘pause button’ to assess the impact of previous rate rises. The important PCE inflation indicator revealed continued and stubborn inflation in the US economy.

– The RBA will announce their latest interest rate decision today. They hit the pause button at the last monetary policy meeting and may continue this pause? Look for a more hawkish narrative, if they do resist the temptation, to resume rate rises.

– The ECB will also announce their latest policy on interest rate rises this week and they are expected to raise rates. German and European inflation levels are extremely high and imposing extreme economic hardships on the consumer.

– US Employment and the Labour market will come into focus during the coming week with a series of reports set to be released. The Jolts Job Reports, will be followed closely by the Challenger and ADP Private Sector Jobs report. The week will culminate in the all-important Non-Farm Payroll number and the US Unemployment number out Friday.

All eyes are on the RBA and if they elect to leave rates unchanged, once again, the downward pressure will resume on the AUD against both the EUR and the GBP. The ECB is expected to raise rates later in the week, thereby narrowing interest rate differentials and further adding to the woes of the AUD in the cross rate.

Current Level: 0.5305 (1.8850)
Resistance: 0.5370 (1.8620)
Support: 0.5255 (1.9030)

The RBA ‘pause’ on rate rises will come under the microscope today when the RBA announces their latest monetary policy statement. The expectations are for the pause to continue, but recent stubbornly high inflation numbers will add to the pressure on the RBA. Australian PMI data will also be watched closely, as will commodity prices, which have been under pressure due to recession fears. The FOMC and Non-Farm Payrolls will be the key data this week.

Current Level: 0.6635
Resistance: 0.6680
Support: 0.6580

UK inflation remains one of the highest in the Western world and compelled the Bank of England to continue to raise rates. The aggressive monetary policy has lent support to the currency allowing trade around 1.2500 in recent times. The cross rate remains down at around 0.4900. PMI data out during the week may influence the progress of the GBP, while local NZD support will be determined by other Central Bank decisions and US employment data, driving risk appetite. Watch the ECB rate rise and the impact on the ‘single currency’, to impact the NZD cross adversely.

Current Level: 0.4940 (2.0240)
Resistance: 0.5000 (2.000)
Support: 0.4900 (2.040)

The cross rate reached 0.9400, following the RBNZ surprise and hawkish 50 basis point rise in early April. The RBNZ was in direct contrast to the RBA, who hit the ‘pause button’ on rate rises at their last meeting. The RBA is meeting again today and expected to hold rates, although stubborn inflation would mean a resumption in rate rises, would not be a great surprise. The interest rate differential supports the NZD, but these can change quickly and the higher NZ rates also reflect risk. Recessionary fears have also driven commodity prices lower, as global commodity demand faulters.

Current Level: 0.9310 (1.0741)
Resistance: 0.9380 (1.0660)
Support: 0.9250 (1.0810)