FX News

European stocks remain in the red Monday with general currency flows thin from the US Holiday. The Australian Dollar (AUD) is holding firm around the 0.6850 (1.4600) areas vs the Euro (EUR) after moving away off 0.6780 (1.4750) levels late in the week. I wouldn’t imagine the Euro will be continuing its push into the 150.00 zone any time soon with the continued stresses of a recession imminent a biproduct of massive inflation and the ongoing energy crisis. The ECB will hike their interest rate 75 points later in the week to 1.25% which will create excitement and volatility, most of this rise is already priced into the weakened EUR however comments by President Lagarde will be crucial.

Current Level: 0.6842 (1.4615)
Resistance: 0.6970 (1.4900)
Support: 0.6710 (1.4350)
Last Weeks Range: 0.6783-0.6936 (1.4417-1.4741)

The Australian Dollar (AUD) stabilised around the 0.5880 (1.7000) areas over the last few days against the British Pound (GBP) but looks to make further moves north. Monday’s daily close at 0.5925 (1.6880) is the highest since September 2017. Looking at the calendar this week we have key RBA and GDP q/q releasing. The Central Bank will raise rates by 50 points to 2.35% later today, if they raise to hard the fear is they could tip the economy into recession. The economy feels the impact of high rates fast unlike other economies because around 60% of home loans are variable not fixed. 2.35% is not outside the realms of being “unreasonably” high – the last time was during 2014 after coming down from the fallout of the GFC at 4.75% in 2011. The cross is setting up to post a fresh high this week.

Current Level: 0.5885 (1.6992)
Resistance: 0.5930 (1.7050)
Support: 0.5865 (1.6860)
Last Weeks Range: 0.5865-0.5926 (1.6873-1.7049

Prices continue to ease in the Australian Dollar (AUD), US Dollar (USD) cross, extending declines to 0.6770 Monday – the July low. The strain of “higher for longer” central bank policy is hanging over markets and will continue to deteriorate growth outlook. The RBA will hike rates today to 2.35% continuing their rapid rate hike plan to combat inflation. Some argue this tightening is too fast, others just a normal cycle not outside “neutral” ranges. The threat by the RBA is they create a stagnant economy and enter a recession later in 2022 early 2023. The chart is presenting a series of lower highs followed by lower lows going back to the start of 2022. Analysis of the current pattern highlights a possible retest of 0.6680 and a drift lower to 0.6600 “fib” support.

Current Level: 0.6814
Resistance: 0.7000
Support: 0.6690
Last Weeks Range: 0.6769-0.6955

With US holiday Monday affecting flow the New Zealand Dollar (NZD), Euro (EUR) cross has been pivoting off 1.6290 in the initial stages as the cross awaits directional cues. Russia says the Nord stream shutdown is because of sanctions introduced by western countries. The only turbine running is now malfunctioning causing stoppages. Meanwhile, Eurozone Retail Sales came in at 0.3% vs 0.4% predicted rising in July but slightly weaker than expected, the main increases were tied into fuels, food and tobacco. Consumer confidence continues to slump in the area to the lowest read since May 2020 as recession risks loom as the region heads into winter. With exception of the financial crisis in 2009 investors’ perception of where the economy is headed hasn’t been this bad for over two decades. The ECB will hike their benchmark rate Friday from 0.5% to 1.25%, expect big volatility around this release.

Current Level: 0.6133 (1.6305)
Resistance: 0.6210 (1.6500)
Support: 0.6060 (1.6100)
Last Weeks Range: 0.6069-0.6179 (1.6183-1.6477)

The British Pound (GBP) continues to recede against the New Zealand Dollar (NZD) falling to the long-term price of 0.5330 (1.8770) early Monday. News of the UK govt bail out to subsidise energy consumers is putting the Pound under pressure, the package could exceed 100B with average customers already paying 50% more than in 2021. Households (29m) would have their bill capped at the current level of 1,971.00 pounds, private banks or govt would then fund the shortfall between the retail price and the wholesale price. Power companies would then pay back the fund by charging consumers a levy of sorts over an extended period of time. No data releasing over the week could indicate more GBP exits.

Current Level: 0.5277 (1.8950)
Resistance: 0.5340 (1.9150)
Support: 0.5220 (1.8730)
Last Weeks Range: 0.5224-0.5318 (1.8801-1.9139)

The New Zealand Dollar (NZD) started the week well extending last week’s gains to 0.9090 (1.1100) against the Australian Dollar (AUD) but has lost ground since with the cross trading back at 0.8960 (1.1160) as we lead into today’s RBA rate decision. The Aussie should be well supported at least over the coming hours with the central bank widely predicted to hike by 50 points to 2.35%. Every 0.5% rise to the cash rate adds roughly 1% to mortgage loans so newly bought property owners could be staring down unmanageable interest rates if not already now but over the coming months. Australian GDP q/q releases tomorrow and should come in at a decent 1.0% as predictions suggest, the calm before the storm as growth is forecast to fall away over the next 12 months. We would be surprised to see the AUD weaken into Thursday.

Current Level: 0.8962 (1.1145)
Resistance: 0.9110 (1.1250)
Support: 0.8890 (1.0980)
Last Weeks Range: 0.8890-0.8986 (1.1128-1.1248)

The New Zealand Dollar (NZD) continues to struggle against the US Dollar (USD) dropping to 0.6080 Monday. The cross has traded in tight ranges with the US markets on holiday. Risk off plays could dominate the cross this week with bigger picture themes dominating and not a lot of key data releasing. Non-Farm Payroll came in better than predicted at 315k vs 295k, but the excitement was short with the Unemployment Rate rising off 3.5% to 3.7%. The drum tight jobs market the Fed has been relying on threatens policy. There are currently 2 jobs for every 1 person looking, because of this, employers are needing to put up wages to attract candidates. This isn’t good for the Fed’s grand plan, to fight inflation they need to cool the economy – with bigger pay cheques this does the opposite. ISM Manufacturing prints tomorrow. The base of 0.6050 could act as support for a while, a technical rebound to 0.6220 is a possibility.

Current Level: 0.6107
Resistance: 0.6230
Support: 0.6050
Last Weeks Range: 0.6050-0.6193

Market Overview

Key Points:

• US Holiday Monday made for a slow start to the week
• Chinese city Shenzhen goes back into covid lockdown for 7 days through to the weekend
• July Japanese household spending -1.4%
• The ECB meets Friday and should hike rates 75 points, further hikes are predicted of 50 points in October and 25 in December
• The EU pushes for a cap on gas prices from Russia, the discussion is particularly relevant as Russia closes Nord Stream gas flows
• The US Dollar (USD) been the strongest currency over the past 10 days while the British Pound (GBP) and the Japanese Yen (JPY) are the weakest on the main board
• US Jobs employment data points to a turning economy
• Newly appointed UK Prime Minister Liz Truss says she will address the cost-of-living crisis by cutting taxes and growing the economy

Major Announcements last week:

• German prelim CPI m/m 0.3% vs 0.3% expected
• US Consumer Confidence 103.2 forecast 97.6
• Eurozone CPI y/y 9.1% up from 8.9%
• Canadian GDP m/m 0.1%
• Caixin (Chinese) Manufacturing PMI 49.5 vs 50.1 much sofer than predicted
• US Non Farm Payroll 232k vs 250k expected
• US Unemployment Rate 3.7% up on 3.5% expected and higher than previous months 3.5%

Monday 05/09
All Day, OPEC-JMMC Meetings

Tuesday 06/09
All Day, CAD, Bank Holiday
All Day, USD, Bank Holiday
3:30am, GBP, MPC Member Mann Speaks
4:30pm, AUD, Cash Rate
Forecast: 2.35%
Previous: 1.85%
4:30pm, AUD, RBA Rate Statement

Wednesday 07/09
1:45am, USD, Final Services PMI
Forecast: 44.3
Previous: 44.1
2:00am, USD, ISM Services PMI
Forecast: 55
Previous: 56.7
1:30pm, AUD, GDP q/q
Forecast: 1.10%
Previous: 0.80%
9pm, GBP, Monetary Policy Report Hearings Read more