Key Points This Week…

Key Points:

NZ National House prices dropped 1.7% between March and April, y/y is +8.8%
NZ April manufacturing PMI 51.2 vs 53.8 previously
Markets are now pricing in a cash rate peak of 3.85% down from 4.25% based on recent inflation expectations. The next RBNZ meeting should see a rise of 0.50% not the 0.75% we were expecting
Fed chair Powell said allowing higher inflation would mean a much steeper downturn – he has endorsed an additional 50 points rise at the June and July meetings
US Yields are coming down as growth fears increase, this is based on the markets pricing a less hawkish track
Risk appetite has been shaky of late due to many reasons -one of these is the prospect of a recession in China due to its zero covid policy
UK prelim GDP for the first quarter prints at 0.8% slightly lower than the 1.0% expected
North Korea has announced lockdowns on the country’s first covid case
The Japanese Yen (JPY) is the strongest currency this week with the Australian Dollar (AUD) the weakest.
Gas Lines through Ukraine remain disrupted

AUD/USD Conversion:

Most major commodities traded lower overnight, iron ore slumping to 127.00 from 141.00 in the past few sessions putting enormous pressure on the Australian Dollar (AUD) . Price deteriorated to 0.6840 as risk conditions worsened and focus on the Fed raising rates continues to cause concerns. US Inflation is still running hot despite publishing down at 8.3% in April, this was higher than the predicted 8.1% but dropped from 8.5% the 41 year high published in March. Energy prices rose 31% vs 32% and fuel oil increased a massive 81% vs 70%. The US 10Y Bond yield is down at 2.83% from Monday’s 3.2% signalling possible Fed pain ahead. The safe haven greenback may be flavour of choice for a while yet. On the chart there looks to be nothing but air all the way to support at 0.6720. A retest of this area is a possible outcome over the next few trading sessions. Looking ahead we have US Retail Sales and Australian unemployment data to publish before Australian parliamentary elections start next weekend.

Exchange Rate:
The current interbank midrate is: AUDUSD 0.6874
The interbank range this week has been: AUDUSD 0.6827- 0.7072

NZD/AUD Conversion:

Choppy conditions in the New Zealand Dollar (NZD), Australian Dollar (AUD) cross saw price pivot around 0.9090 (1.1000) levels for most of the week, the kiwi avoiding the 0.9000 support area for another week and looks robust. NZ Inflation expectations held at 3.29% out two years, the RBNZ wont to bothered by these numbers and could re-evaluate their tightening lower than forecast over the coming months. This will give more weighting to a soft economic “come down” rather than a potential recession which is brewing. Next week’s key print is Aussie jobs data Thursday. Sellers of AUD should consider these current levels with the RBNZ statement due late May.

Exchange Rates:
The current interbank midrate is: NZDAUD 0.9084 AUDNZD 1.0998
The interbank range this week has been: NZDAUD 0.9041- 0.9124 AUDNZD 1.0960- 1.1060

NZD/USD Conversion:

Same same but different. The New Zealand Dollar (NZD) has plunged to a fresh lows this morning reaching 0.6213 against the US Dollar (USD) as market sentiment remains poor and equity markets under pressure. There has been a lot of fallout since the Fed raised rates 50 points last week. US Inflation is still running hot despite coming in at a lower level of 8.3% in April, this was higher than the predicted 8.1% but down from 8.5% the 41 year high in March. Energy prices rose 31% vs 32% in March and fuel oil increased a whopping 81% vs 70%. Food prices jumped 9.4% the biggest rise since 1981. NZ Inflation expectations yesterday showed no reprieve for lower Inflation over the next while according to RBNZ predictions. The 2 years expectation at 3.29% held most of the focus as it’s the likely timeframe for when the central bank expects monetary policy tightening to have peaked. The one-year forecast came in at 4.88%. The RBNZ said inflation expectations remain anchored around the targeted range between 2-3%, in other words “move on-nothing to see here”. It’s hard to see the kiwi perk up in the near term with everything going on, downside risks remain.

Exchange Rates:
The current interbank midrate is: NZDUSD 0.6248
The interbank range this week has been: NZDUSD 0.6204- 0.6412

FX Update: Global Risks Sinks Kiwi

Market Overview

Key Points:

Australian House Prices are poised to significantly drop in value as a recent household survey of household spending suggested home buying fell by 3.8% in April
Biden has said he is worried Putin doesn’t have a way out of the war in Ukraine
Chinese economic risks are rising with its ties to Russia during the Ukraine war
US consumers have expressed concerns about US housing affordability- Fannie Mae’s Home Purchase Sentiment Index decreased 4.7 points to 68.5 in April
Vice chair of the Federal Reserve Clarida suggests the Fed will need to raise rates to at least 3.5% to bring down inflation back to around 2.0%
Fed one year inflation expectations 6.3% vs 6.6% in March
The ECB will probably raise rates and start a tightening cycle in June
The Japanese Yen (JPY) is the strongest currency this week with the Australian Dollar (AUD) the weakest.
ANZ Truckometer Index for light traffic rose 8.3% in April while heavy traffic rose 2.3% Read more

AUD/EUR (EUR/AUD) Conversion:

Global sentiment was in the toilet off the weekly open, the Australian Dollar (AUD)  extending last week’s losses to 0.6580 (1.5195) in early Tuesday sessions against the Euro (EUR) from 0.6720 (1.4880). A soft round of Eurozone data and a dovish ECB haven’t helped, and German factory orders slumped. Meanwhile the ongoing risk off tone has investors selling the Aussie as uncertainty weighs heavy. The value of iron ore has dropped around 5% since last Thursday as mining stocks struggle. A thin calendar this week sees no key standout events. On the chart- we see solid support at 0.6550 (1.5270) the 50% fib retracement area.

Current Level: 0.6548 (1.5271)
Resistance: 0.6850 (1.5330)
Support: 1.6525 (1.4600)
Last Weeks Range: 0.6681-0.7109 (1.4065-1.4966)

AUD/GBP Conversion:

The volatility in markets rages on with war and inflation uncertainty causing problems everywhere. The Australian Dollar (AUD) has reversed last week’s gains from the weekly close at 0.5755 (1.7380) slumping to 0.5635 (1.7750) into Tuesday as soft risk sentiment drags down risk assets. US bond prices clicked higher as serious worry around the recent US Fed hike has market analysts concerned of potential negative impact to US and global economies. The recent poor US Production read has added to the bearish mood. Key data this week is prelim UK GDP q/q amid a thin docket. The 7-week low at 0.5600 (1.7880) could be challenged this week.

Current Level: 0.5610 (1.7825)
Resistance: 0.5850 (1.7880)
Support: 0.5590 (1.7100)
Last Weeks Range: 0.5600-0.5820 (1.7178-1.7854)

AUD/USD Conversion:

The Australian Dollar (AUD) has extended declines from last week’s 0.7260 high dropping against the US Dollar (USD) to 0.6950 this morning from the weekly open of 0.7080. It’s the first time since January this year the cross has gone below 0.7000 the physiological level as it clocks a new June 2020 low. Equity indices travelled lower overnight as well as a basket of main commodities including iron ore has come off 5% since last Thursday adding to the AUD woes. Market participants are spooked by the prospects of higher inflation in the US and short-term interest rates as they try to reign this in inflation and reducing its bond holdings – a move which could lead to slower long-term growth and earnings and raising fears of a possible recession. Key data this week in the cross is CPI m/m in the US. Buyers of USD should consider at these levels with a heavy bias to the downside remaining.

Current Level: 0.6916
Resistance: 0.7000
Support: 0.6750
Last Weeks Range: 0.7030-0.7262

NZD/EUR Conversion:

The global risk off theme sank the New Zealand Dollar (NZD) in overnight trading, in fact it was immediately on the backfoot post the weekly open travelling from 0.6080 (1.6450) levels to 0.6000 (1.6690) at the time of writing. Pivotal and physiological 0.6000 may hold for now but I wouldn’t put money on a reversal in the short term with the momentum building for further NZD declines. Equity markets remain under selling pressures as global inflation and supply issues weigh heavy. NZ inflation expectations q/q is the calendar highlight this week; we should get a better picture of where inflation could go over the coming years.

Current Level: 0.5956 (1.6790)
Resistance: 0.6040 (1.6830)
Support: 0.5940 (1.6550)
Last Weeks Range: 0.6065-0.6180 (1.6181-1.6488)

NZD/GBP Conversion:

Market rot set in quickly off Monday’s open, risk conditions slumped, and equities are down large. The British Pound (GBP) regained last week’s losses shifting from the 0.5210 (1.9200) areas to 0.5130 (1.9490) into early Tuesday. Looking ahead we have NZ inflation expectations and UK prelim GDP q/q. A retest of last week’s low at 0.5115 (1.9550) the 4 March low looks a given as the bearish run continues.

Current Level: 0.5099 (1.9620)
Resistance: 0.5190 (1.9680)
Support: 0.5160 (1.9280)
Last Weeks Range: 0.5114-0.5253 (1.9035-1.9551)