FX News

The New Zealand Dollar (NZD) has suffered losses against the US Dollar (USD) for 7 straight weeks in a row coming from 0.6570 and drifting to 0.6125 in the last hour. Consolidating around this zone we wonder for how long with massive uncertainty poisoning market sentiment of late. The New Zealand Central Bank (RBNZ) raised its benchmark interest rate yesterday by 50 points to 2.50%, the third consecutive time as efforts to bring down 2-decade high inflation ramps up. RBNZ governor Ore said more interest rate rises were in store. Employment remains at its maximum sustainable level of 4% with the bank saying there were still upside risks to inflation and a downside bias to growth over the next couple of years. The target inflation rate remains at 1-3% and will tighten at pace until they feel satisfied that measures were working. Indications by the RBNZ were that the rate would peak at around 4.0% in mid-2023. Markets were monitoring any comments around the potential lowering of this “peak”, but movement post release was benign. Meanwhile, US Inflation printed overnight with yet another massive rise from May’s 8.6% to June’s 9.1%, the fastest pace in more than 40 years which will end any argument of whether the Fed will raise rates 50 points or 75 points at their next meeting. Fed officials had already said a 75 point move higher would be appropriate. This data should tip the US economy into recession. Buying the US Dollar on spikes looks the sensible decision as kiwi risk remains.

The current interbank midrate is: NZDUSD 0.6116
The interbank range this week has been: NZDUSD 0.6080- 0.6191

Coronavirus concerns in China, a drop in the value of key resources such as iron ore and recession worries have all added to falls in the Australian Dollar (AUD) over the past couple of weeks. Iron ore has depreciated more than 20% since the start of June as recession concerns and inflation continue to rise. The Aussie was pushed lower early in the week to 0.5650 (1.7700) before recovering to 0.5685 (1.7590) into Thursday as markets await Australian Jobs data publishing this afternoon. Yield differentials between the two currencies remain reasonably similar for now, maintaining the long-term sideways channel. Looking ahead we have UK CPI data Wednesday which could surprise to the upside well beyond 9.1% which stands as the highest level since May 1982.

The current interbank midrate is: AUDGBP 0.5684 GBPAUD 1.7593
The interbank range this week has been: AUDGBP 0.5652- 0.5710 GBPAUD 1.7510- 1.7692

The Australian Dollar (AUD) slumped to a May 2020 low of 0.6710 against the US Dollar (USD) in yesterday’s trading, a fresh May 2020 low. A brief return early morning to 0.6815 was temporary, the cross back around 0.6730 with the AUD looking like it’s on its way lower. US inflation rose to 9.1% y/y from May’s 8.6% which should end any debate over whether the US Fed will hike 50 or 75 points when the Fed meet at the end of July. Some analysts are suggesting a 1% move is more likely given inflation is showing no sign of retreating and the economy has a good chance of falling into a formal recession. Following this rise the Fed will hike the interest rate again possibly 75 points in September. Support on the chart is 0.6660, a break below here and the cross could slide into a free fall.

The current interbank midrate is: AUDUSD 0.6744
The interbank range this week has been: AUDUSD 0.6709- 0.6849

After 7 months of continued losses for the New Zealand Dollar (NZD) vs the Australian Dollar from 0.9720 (1.0290) in November the pair looks to have consolidated around the 0.9100 (1.1000) zone. Tracking sideways now over the past 2-3 weeks the massive shifts we have seen over the past few months have halted. The RBNZ raised their interest rate yesterday to 2.5% from 2.0% as predicted with Governor Ore saying there were more to follow. Upside inflation risks remain for the central bank with the target inflation target still in the 1-3% band. Prices in major resource commodities continue to move lower- the iron ore price is down at 107 per tonne adding to AUD woes, a further slump could see the NZD push higher into the 0.92’s (1.0870) over the coming days. Later in the day we have Aussie jobs data which could improve the AUD.

The current interbank midrate is: NZDAUD 0.9065 AUDNZD 1.1027
The interbank range this week has been: NZDAUD 0.9030- 0.9120 AUDNZD 1.0964- 1.1073

Tuesday 05/07
All Day, USD, Bank Holiday
2:30AM, CAD, BOC Business Outlook Survey
4:30PM, AUD, Cash Rate
Forecast: 1.35%
Previous: 0.85%
4:30PM, AUD, RBA Rate Statement
10PM, GBP, BOE Gov Bailey Speaks

Wednesday 06/07
Tentative, NZD, RBNZ Statement of Intent
9PM, EUR, EU Economic Forecasts

Thursday 07/07
2AM, USD, JOLTS Job Openings
Forecast: 10.85M
Previous: 11.40M
2:00AM, USD, ISM Services PMI
Forecast: 54.6
Previous: 55.9
6AM, USD, FOMC Meeting Minutes Read more

Market Overview

Key Points:

• IMF cuts 2022 US growth forecast to 2.9% saying the chances of avoiding a global recession is slim

• Macron and Biden were overheard speaking at the G7 meeting in Germany: rumour is the Saudis are running out of oil reserves which could go for 6 months- if this is true it could put massive pressure on oil prices
• Chinese industry fell 6.5% y/y in May, less than the 8.5% in April
• Russia defaults on its sovereign bond payments
• The ECB are forecasting a 25-point rise in their late 2 July meeting and a 50-point jump in September
• Gold is on the rise as the G7 nations plan to ban exports of gold bullion out of Russia
• The ANZ forecast the RBNZ to hike 50 points at the next policy meeting in July and August, previously this was 50 points and 25 points
• US May pending home sales 0.7% vs -3.7% predicted
• The Canadian Dollar (CAD) is the strongest currency this week with the New Zealand Dollar (NZD) the weakest.
• Key Chinese cities show signs of reopening from strict covid lockdowns Read more

After a sizable push higher last week by the Euro (EUR) against the Australian Dollar (AUD) to 0.6520 (1.5340) areas the currency was unable to hold as German Manufacturing data printed. Recent sharp dips in exports towards the end of the second quarter have slowed momentum and put pressure on the already slowing economy. Figures showing the worst read since June 2020 at 52.0 compared to 54.0. This took the EUR low to 0.6590 (1.5180) where the pair closed on the week. Prices into Tuesday were Euro supportive as risk assets struggled and sentiment turned. ECB inflation is at the end of the week and should represent a fresh high around 8.5% thus factoring tightening of 150 points by the end of 2022- hopefully, we get clues as to how fast this may happen. Our prediction of moves to 0.6520 (1.5340) area was correct – further upside bias in the Euro is expected over the week.

Current Level: 0.6545 (1.5278)
Resistance: 0.6650 (1.5550)
Support: 0.6430 (1.5040)
Last Weeks Range: 0.6517-0.6646 (1.5046-1.5343)

The English Pound remains well supported of late against the Australian Dollar (AUD) as the cross continues its June bull run against a struggling Australian Dollar (AUD) with price at 0.5645 (1.7720) in early Tuesday trading. UK Inflation came is bang on expectations at 9.1% a 40-year high increasing from 9.0% as the cost-of-living crisis worsens based on food, energy and gas costs. It’s worth noting that some analysts think inflation may be slowing while inflation is expected to climb to over 11.0% over the next few months, work that out? On the calendar we have a speech by Governor Bailey, hopefully he may give out his grand plans for rises to their cash rate over the coming months. On the chart we have a nice “head and shoulder” pattern in play showing the likelihood of a push towards 0.5550 (1.8000) is possible in the short to medium term.

Current Level: 0.5642 (1.7724)
Resistance: 0.5790 (1.8100)
Support: 0.5525 (1.7270)
Last Weeks Range: 0.5613-0.5715 (1.7495-1.7814)

Recent backtracks of forecasted rate hikes by the Federal Reserve has seen the US Dollar (USD) underperform a little. The Australian Dollar (AUD) however remains soft off the back of commodity price losses including poor performing iron ore. Easing covid restrictions in China have helped to stabilise key commodities which assist to underpin the Australian economy. It’s been a quiet week thus far with the cross hovering between recent ranges around the 0.6910-mark Tuesday morning. Core US CPI came in at 0.7% as markets await the final US GDP read Thursday. This is predicted to be -1.5% confirming the economy is heading for a recession. With a hike next week of 50 points when the RBA meet, we expect the Aussie may just tick higher above 0.7000 in the coming days.

AUD/USD Rates:
Current Level: 0.6924
Resistance: 0.7000
Support: 0.6850
Last Weeks Range: 0.6868-0.6995