FX News

The New Zealand Dollar (NZD), Australian Dollar (AUD) pair looks to have consolidated around the 0.9030 area into Friday after starting the week at 0.9100 (1.1000) levels. The cross tested 0.9000 in the morning session but failed to break the 5-week support bouncing as it has done many times over the weeks. Monday’s NZ CPI read pushed higher to 7.3% rising from 6.9% in the first quarter and above the forecasted 7.1% predicted sending the kiwi lower. Iron Ore prices are struggling to stay above 100.00 per tonne, hovering at 100.50 currently coming off a five week decline from 146.00 as the Chinese govt establishes a new organisation in order to support local Chinese steel producers. Last year China paid more than 130B for Australian ore, the biggest export out of the country by a wide margin. Key data out next week comes in the form of Australian CPI (second quarter) and is forecast to tick higher from 5.1%

Exchange Rates
The current interbank midrate is: NZDAUD 0.9016 AUDNZD 1.1084
The interbank range this week has been: NZDAUD 0.9006- 0.9101 AUDNZD 1.0987- 1.1103

Key Points:

The Euro traded below parity Tuesday against the US Dollar- the first time since December 2002
The Chinese city of Wugang is to be locked down for 3 days – population is just under 1M
The World Health Organisation have identified a new strain of Covid- this is named BA 2.75 and is possibly more transmissible than prior variants
Japan’s finance minister Suzuki has been on the wires expressing concerns for the Japanese Yen and its path of weakness, he said the B0J will act and intervene if they feel they must
US CPI expected to be 8.6% came in at 9.1% the highest since 1980
RBNZ raises interest rate from 2.0% to 2.5% as expected
IMF cuts US GDP growth to 2.3% from 2.9%- 2023 also slashed from 1.7% to 1.0%
We expect the Fed interest rate to reach a peak of 3.5% in February 2023 before cuts start around September to late next year
The US Dollar (USD) is the strongest currency this month (July) while the Euro (EUR) is trading at the weakest.
The Bank of England will hike rates in their August meeting from 1.25% to possibly 1.75%, the BoE governor Bailey is saying inflation will come down a lot in 2023 raising the question of unnecessary over aggressive hikes forecast
The Bank of Canada surprised markets when they raised rates a whole 1% overnight to 2.50% – markets were picking a 75-point move, the BoC highlighting there was more to come

From last week’s low of 0.6495 (1.5400) the Euro (EUR) has been hammered. The Australian Dollar (AUD) extended its run through to 0.6765 (1.4780) early Wednesday, the Eurozone energy crisis having a major effect on the currency breaking down. Overnight the Euro has gained to 0.6715 (1.4890) with equity markets all posting losses affecting risk flows. German and Eurozone economic sentiment reads came in well below expectation as businesses predict tighter economic conditions ahead. Looking ahead we have Aussie job’s data this afternoon with predictions of unemployment clicking lower to 3.8% which may improve the AUD

The current interbank midrate is: AUDEUR 0.6734 EURAUD 1.4850
The interbank range this week has been: AUDEUR 0.6677- 0.6721 EURAUD 1.4878- 1.4975

The New Zealand Dollar (NZD) run against the Euro (EUR) from last week’s low of 0.5906 (1.6930) continued this week with the kiwi posting a fresh high of 0.6130 (1.6320) an early May high. The Euro pushed back early today on risk aversion to 1.6410 despite German and Eurozone economic sentiment releasing dire. German CPI printed at 0.1% for June as expected, y/y (prelim) inflation prints at the end of the month and may reflect further softening in prices from the current 7.6%. The ECB are predicted to raise their interest rate over the coming months to a peak of 2.0% in March next year. Buying EUR above 0.6000 looks attractive.

The current interbank midrate is: NZDEUR 0.6098 EURNZD 1.6398
The interbank range this week has been: NZDEUR 0.6062- 0.6129 EURNZD 1.6314- 1.6494

Movement in the New Zealand Dollar (NZD), British Pound (GBP) remains choppy with the cross preferring to trade sideways within recent ranges of late. The RBNZ rate announcement yesterday became a non-event as market participants were mostly disinterested after the RBNZ raised rates to 2.5% from 2.0% as predicted. Just shows how much this anticipated release was priced into the currency already. The target inflation rate remains at 1-3%, Governor Ore saying they would tighten at speed until they feel satisfied that measures were working to lower rising inflation. Indications by the RBNZ were that the interest rate would peak at around 4.0% in mid-2023. UK growth overnight came in at 0.5% vs 0.1% expected for the month of May after a decline of -0.2% in April. The threat of a recession is in the balance now over the coming months.

The current interbank midrate is: NZDGBP 0.5153 GBPNZD 1.9406
The interbank range this week has been: NZDGBP 0.5126- 0.5180 GBPNZD 1.9302- 1.9505

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