FX News

Key Points:

Rising inflation and central bank cash rate rises into recessions, paints difficult and strange times ahead, looming gas prices and supply chain issues will cause issues for some time to come- the Russia-Ukraine war ensures more isolated problems particularly for the Eurozone region with Germany expected to go deep into recession over the second part of 2022
US recession definitions are being debated as to what officially constitutes a formal recession after the “prelim” US GDP published negative overnight
Yellen says the US economy remains resilient despite headwinds
Chinese Xi and US President Biden spoke on the phone for over two hours- I suppose this is a good sign?
US jobless claims 256k vs 253k estimate Read more

The Euro struggled earlier in the week falling to 1.4500 (0.6900) levels against the Australian Dollar (AUD) before recovering Thursday reaching 1.4600 (0.6850) early Friday. The expected Fed hike and CPI read sent equity prices higher supporting the Aussie mostly. German GfK consumer confidence sank to2 a record slow as JP Morgan downgraded their Eurozone economic forecasts. Australian CPI q/q came in at 1.8%, raising the year-on-year number ending June 2022 from 5.1% to 6.1% – rising prices in food and fuel the main drivers. The data should push the RBA to hike rates aggressively by 0.50% or more at Tuesday’s meeting.

The current interbank midrate is: AUDEUR 0.6857 EURAUD 1.4583
The interbank range this week has been: AUDEUR 0.6755- 0.6894 EURAUD 1.4504- 1.4803

The Australian Dollar (AUD) bull run over the past few weeks came to an end posting 0.5815 (1.7200) a new 12 high before bouncing to 0.5750 (1.7420) over the week’s action. The BRC (British Retail Consortium) release highlighted food inflation has risen 7.0% over the past year, the biggest jump since 2009 stretching the spending power of consumers even thinner. This data will certainly help push up expectations of a Bank of England (BoE) rate increase at their next meeting on the 4th of August.- whether they raise 25 points, or 50 points remains uncertain. Aussie CPI q/q came in at 1.8, raising the 1y/y number ending June from 5.1% to 6.1% – rising prices in food and energy the main offenders. This should set up the RBA for further rises to their cash rate with 0.50% predicted at Tuesday’s meeting. Expect decent price moves over the week in this cross.

The current interbank midrate is: AUDGBP 0.5745 GBPAUD 1.7406
The interbank range this week has been: AUDGBP 0.5736- 0.5807 GBPAUD 1.7218- 1.7433

The Australian Dollar (AUD) continues to extend gains against the US Dollar (USD) as it approaches the key 0.7000 figure this morning. Coming off 0.6700 areas mid-July represents good buying and should be considered as the general tone of the pair is still to the downside. The Federal Reserve raised their key interest rate 75 points to 2.50% yesterday in a unanimous decision by the 12 Fed members as the Fed stay aggressive on policy to bring down rising 40-year high inflation. This is the highest single rise to the cash rate since 1994. The Fed saying there are obvious signs of the economy slowing since last month’s policy meeting. US “prelim” CPI came in at -0.9% overnight signalling the economy is heading for a recession, or are they? Recession aficionados are rejecting the rule of thumb that two negative growth quarters officially spells an economic recession saying this theory in today’s times has no actual merit. Employment continues to rise, and industrial production is solid while retail sales as a measure of consumption has been tainted by high inflation skewing “real” growth. Next week we have RBA cash rate and US Non-Farm Payroll releasing.

The current interbank midrate is: AUDUSD 0.6999
The interbank range this week has been: AUDUSD 0.6875- 0.7012

The New Zealand Dollar (NZD) extended to a fresh 12 week high of 0.6210 (1.6100) versus the Euro (EUR) before dipping to 0.6135 (1.6300) areas yesterday. German GfK consumer confidence sank to a record low as JP Morgan downgraded their Eurozone economic forecasts. Equity markets pushed higher on disappointing US data and rate hike expectations, the kiwi remaining bid into Friday around the 0.6170 (1.6200) zone. Looking ahead we have NZ employment data Wednesday with a rise to the unemployment rate predicted. This could dampen upside bias for the kiwi.

The current interbank midrate is: NZDEUR 0.6167 EURNZD 1.6215
The interbank range this week has been: NZDEUR 0.6099- 0.6207 EURNZD 1.6110- 1.6394

The British Pound (GBP) continued to rally over the week topping out at 1.9450 (0.5140) against the New Zealand Dollar (NZD) before slipping to 1.9300 (0.5180) levels into Friday sessions. The BRC report (British Retail Consortium) highlighted that food inflation rose 7.0% over the past year, the biggest jump since 2009 stretching the spending power of consumers even further. This will no doubt help push up expectations of a Bank of England (BoE) rate increase next Thursday- whether they raise 25 points, or 50 points remains uncertain. Key NZ unemployment data next week should also add excitement to the mix. We still support downside moves ahead for the kiwi – look for a retest of 0.5120 (1.9520) over the next few days is our prediction.

The current interbank midrate is: NZDGBP 0.5168 GBPNZD 1.9349
The interbank range this week has been: NZDGBP 0.5142- 0.5243 GBPNZD 1.9073- 1.9446

After a slow start to the week the New Zealand Dollar (NZD) has gained on the US Dollar (USD) showing 0.6295 on the chart midday Friday in what has been a wild ride. The Federal Reserve continued its reversal of “easy money policy” yesterday raising their key interest rate 75 points to 2.50% in a unanimous decision by the 12 Fed members as efforts ramp up to bring down 40-year high inflation. The Fed hasn’t raised by 75 points since 1994 saying there are obvious signs of the economy slowing since last month’s meeting. Earlier speculation after the inflation ballooned to 9.1% in June y/y were that the Fed may raise a whole 1% but with a slowing economy this may have been a wise move not to be as aggressive. The Fed will raise again in September with odds at 62% for 50 points versus 33% for a 25-point move. Next week’s NZ jobs numbers and US NFP- Non-Farm Payroll will be key. On the chart we have a couple of Fibonacci 50% retracement patterns lining up. The most significant is the potential downside move from 0.6310 based on the high at 0.6570 and the low of 0.6060 offering damn good resistance. Something to consider as the NZD has an overbought feel to it.

The current interbank midrate is: NZDUSD 0.6293
The interbank range this week has been: NZDUSD 0.6191- 0.6299

The New Zealand Dollar (NZD) dropped to 0.8950 (1.1175) levels midweek against the Australian Dollar (AUD) the lowest price in the cross since August 2018. Since then, the NZD has bounced back to around 0.9000 as the Aussie underperformed, markets backed off predictions of RBA hike expectations based on weaker Retail Sales. Earlier Australian CPI q/q came in at 1.8, raising the year-on-year figure in June from 5.1% to 6.1% – rising prices in food and energy posting the biggest rises. Next weeks’ RBA cash rate release with a 50 point move higher to 1.85% has been priced in. Speak around the RBA’s future policy stance will be key.

The current interbank midrate is: NZDAUD 0.8989 AUDNZD 1.1117
The interbank range this week has been: NZDAUD 0.8946- 0.9061 AUDNZD 1.1036- 1.1177