FX News

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

Key Points:

Eurozone July Unemployment Rate holds steady at 6.6% in July
Chinese Manufacturing dives into contraction to 49.5 in August after 50.2 expected
Singaporean Oil tanker Affinity run aground in the Suez Canal but was refloated fast not disrupting the flow of ships into the north
The ECB meet next week and should hike rates 75 points, this predates expectations of another hike of 50 points in October and 25 in December
Australian Manufacturing PMI drops into contraction – 49.3 for August
The Euro (EUR) has been the strongest currency this week while the British Pound (GBP) earns the spot of the weakest on the main board of currencies
Toyota Motor Company Japan will increase its price of steel it sells by $289 per tonne in October- Toyota is the largest Japanese steel buyer

A solid pushback by the Euro this week has seen prices in the Euro (EUR), Australian Dollar (AUD) cross push back to 0.6790 (1.4730) late Thursday reversing all of last week’s losses. Fitch has come out saying a eurozone recession is imminent as a result of the gas crisis, a full cut of the Russian gas line to the EU looks increasingly likely. Inflation in the Eurozone increased to 9.1% in the month of August, a 25 year high. Interestingly most of the inflation we see now was prior to the Ukraine invasion, made worse by energy spikes and post war sanctions. Next week’s key standout is the RBA release of policy and rates with a hike of 50 points to 2.35% expected. We expect normal Euro weakness to resume next week.

Exchange Rates:
The current interbank midrate is: AUDEUR 0.6825 EURAUD 1.4652
The interbank range this week has been: AUDEUR 0.6784- 0.6936 EURAUD 1.4417- 1.4739

The British Pound (GBP) has slumped to 1.7000 (0.5885) depreciating for the second week running against the Australian Dollar (AUD) hit hard as it clocks a new November 2017 low. No tier one data published over the week made for subdued action, the pair sticking to areas around 0.5900 (1.6950) for most of the week. A real fear is starting to develop over rising inflation in the UK with new reports suggesting it could peak as high as 22%. Continued rises to gas and electricity prices over the winter months could be catastrophic not just for consumer prices but also the value of the Pound. The GBP is threatening to make it a very bleak few months for UK importers if the GBP collapses. Looking ahead we have RBA policy release and interest rate Tuesday and Aussie GDP q/q with 0.8% predicted. By mid-next week we could be pricing the cross at 0.6000 (1.6660) levels.

Exchange Rates:
The current interbank midrate is: AUDGBP 0.5880 GBPAUD 1.7006
The interbank range this week has been: AUDGBP 0.5865- 0.5927 GBPAUD 1.6871- 1.7050