FX News

Key Points:

Global trade fell for the 3rd straight month in September a sure sign of the global economy slowing as high energy prices and rising interest costs knock back business and consumer spending capacity
NZ Retail Sales Q3 +0.4% vs 0.5% expected – prior -2.3%
NZ Consumer Confidence for November prints at 80.7 previous 85.4 as confidence slips further pessimistic
Both Australia and New Zealand’s housing markets continue to tank, Australia’s medium house price fell 1.2% in October while NZ is -10.9% lower year on year.
China daily covid numbers rise to 29,700, the biggest daily number of the pandemic
The British Pound (GBP) is the strongest currency this week while the US Dollar (USD) was the worst performer.

The Australian Dollar (AUD) has regained momentum over the last couple of days against the Euro (EUR) reversing from 0.6435 (1.5540) to reach 0.6500 (1.5380) into Friday. Risk on Aussie buying with equity markets higher, the main driver. Meanwhile French and German manufacturing reads were mixed and still well below key 50.0 around 49.1 and 46.7 confirming continued contraction for businesses. Earlier Governor Lowe spoke of pending higher inflation which will result in lower growth over the coming months. He is concerned about a rise to wages as workers demand better pay. This in turn could lead to higher inflation, something he will be desperately hoping to avoid. Downside risks to the AUD remain.

The current interbank midrate is: AUDEUR 0.6497 EURAUD 1.5391
The interbank range this week has been: AUDEUR 1.5359- 1.5526 EURAUD 0.6440- 0.6510

The British Pound (GBP) has been the best performing currency over the week, leaving the Australian Dollar (AUD) in its wake as it extended last week’s gains through to 0.5555 (1.8000) midweek. A significant 7-day turnaround from 0.5730 (1.7450) levels. UK Producer Managers Index (PMI) came in better than predicted at 46.2 vs 45.7 which is positive but still well under the index 50.0 indicating a contraction for businesses. Further covid lockdowns in China may keep the Aussie under pressure for a while together with Governor Lowe talking of a possible 0.50% rate increase as opposed to 75 points.

The current interbank midrate is: AUDGBP 0.5584 GBPAUD 1.7908
The interbank range this week has been: AUDGBP 0.5555- 0.5625 GBPAUD 1.7776- 1.7999

The Australian Dollar (AUD) has regained the edge on the US Dollar (USD) after last week’s losses reaching 0.6760 this morning after being down around 0.6580 areas. Risk sentiment improved as the greenback came under pressure. Governor Lowe was on the wires saying policy is by no means set in stone and the next few RBA meetings may result in large hikes if needed. Dovish Fed speak hasn’t helped the USD with the Fed pointing to slower rate hikes while they acknowledged “significant uncertainty” on the horizon. While we expect the Aussie to improve further and retest 0.6900 we think the rally theme of late may be close to being exhausted.

The current interbank midrate is: AUDUSD 0.6765
The interbank range this week has been: AUDUSD 0.6583- 0.6777

The New Zealand Dollar (NZD) has outperformed the Euro (EUR) over the week lengthening its hold from 0.5880 (1.7000) to this morning’s 0.6025 (1.6600). The Euro has done reasonably well agst the main board of currencies to be fair with slightly better Eurozone PMI data printing better than predicted but couldn’t compete with a 75-point hike and NZD surge post the RBNZ release. The Reserve Bank of New Zealand hiked their interest rate a whopping 0.75% as widely predicted, Governor Orr staunch in his interpretation of what needs to be done to bring down inflation. Taking a proactive approach earlier may have saved the economy from a pending recession. Eurozone y/y CPI estimate is Wednesday, it’s hard to not see the kiwi pushing higher into the weekly close.

The current interbank midrate is: NZDEUR 0.6013 EURNZD 1.6630
The interbank range this week has been: NZDEUR 0.5946- 0.6037 EURNZD 1.6563- 1.6817

UK PMI data came in above expectations at 48.8 vs 48.0 improving the GBP yesterday to 0.5160 (1.9370) against the New Zealand Dollar (NZD). Analysts however are still predicting a steep fall in business activity over the coming months with prospects of a UK recession likely. Meanwhile the RBNZ raised their interest rate 75 points as planned to 4.25% Wednesday the cross spiking to 0.5215 (1.9170) briefly on the news. Governor Orr said peak estimates are now at 5.5% in Q3 2023 from 4.10% in Q2 2023. Looking into next week the calendar is light indicating big ticket themes will be the main driver. Downside risk remain in the pair.

The current interbank midrate is: NZDGBP 0.5165 GBPNZD 1.9361
The interbank range this week has been: NZDGBP 0.5155- 0.5216 GBPNZD 1.9171- 1.9395

The US Dollar (USD) has been hit hard this week as risk conditions improved, however the safe haven buy may come back into play at some point together with the Federal Reserve signalling further interest rate rises. Today and through to the close of the week should be thin trading on account of the US Holiday break. The New Zealand Dollar (NZD) rose to 0.6285 early today in the aftermath of the RBNZ raising rates 0.75% to 4.25% the highest it’s been since December 2008 -GFC. Governor Orr resolute with his decision to keep raising rates hard until signs of a slowing inflation are seen. It’s a fine line between tipping the country into recession by strangling growth. It’s arguable the RBNZ should have done more earlier. With wage growth yet to really filter through, we could yet see NZ inflation go higher than the current 7.2% putting more strain on interest rates and ultimately consumer pockets. The kiwi may retest 0.6450 resistance over the coming days.

The current interbank midrate is: NZDUSD 0.6259
The interbank range this week has been: NZDUSD 0.6083- 0.6289

The New Zealand Dollar (NZD) extended gains on the Australian dollar (AUD) this week, the cross reaching 0.9335 (1.0710) before settling around 0.9260 (1.0800) into Friday. The highest level since late March 2022 as the kiwi rally continues from the 0.8710 (1.1480) reversal late September. RBA’s Lowe said he was by no means done with tightening policy and the path is not predetermined but data driven. The RBNZ hiked rates 75 points to 4.25% as predicted, Orr saying inflation needs to return to the 1-3% band, cost of living is far too high, and employment is beyond the maximum sustainable level. Looking ahead, next week’s data looks thin, we expect the kiwi to remain well supported for a while.

The current interbank midrate is: NZDAUD 0.9248 AUDNZD 1.0803
The interbank range this week has been: NZDAUD 0.9216- 0.9336 AUDNZD 1.0711- 1.0850

Risk off markets late last week has seen the Euro (EUR) jump from 1.5270 (0.6550) levels to 1.5540 (0.6435) this morning, the Australian Dollar (AUD) again under pressure. The ECB has again warned of recession risks with Lagarde saying chances have increased based on recent incoming economic data. She also highlighted bringing down inflation was key and raising rates beyond forecast numbers may be needed at the detriment of restraining growth. High natural gas prices caused by the Russian invasion of Ukraine and bottlenecks of supply post coronavirus lockdowns is partly to blame. The cross may struggle to push past support at 0.6380 (1.5670) the Feb 2022 low.

Current Level: 0.6447 (1.5511)
Resistance: 0.6535 (1.5700)
Support: 0.6370 (1.5300)
Last Weeks Range: 0.6431-0.6555 (1.5255-1.5549)

The British Pound (GBP) extended moves higher against the Australian Dollar (AUD) Monday to 0.5585 (1.7900) from 0.5730 (1.7460) mid last week as risk sentiment waivers. UK inflation for October grew to 11.1% y/y from 10.1% in September higher than the 10.7% forecast representing the biggest read since October 1981 with the main drivers being energy and food prices. Meanwhile Aussie job’s numbers showed 32,000 new people entered the workforce in October up from estimates of 15,000. The Unemployment rate dropped to 3.4% from 3.5% but with a slight drop to the participation of 66.5%. Overall, the data shouldn’t alter the RBA tightening course with more 50-point hike shifts to continue. We think a retest of the prior low at 0.5510 (1.8150) may come into play over the week.

Current Level: 0.5583 (1.7911)
Resistance: 0.5715 (1.8100)
Support: 0.5520 (1.7500)
Last Weeks Range: 0.5607-0.5728 (1.7458-1.7834)