FX News

The New Zealand Dollar (NZD) slipped below key 0.6200 yesterday against the US Dollar (USD) clocking 0.6180 into Friday trading as it looks bearish. Markets turned risk averse buying the greenback in post “Fed” selling, the Fed raising rates 25 points to 5.50% the 11th raise since March 2022 and a 22 year high. It’s possible this could be the last hike in this cycle with inflation coming down recently although the Fed remains open to further tightening if inflation throws a curveball. Also of note, the Fed aren’t predicting a recession in 2023, Powell adamant the US economy will come down soft. Technically the pair is trading at the bottom of an uptrend channel suggesting we may see the kiwi push back to 0.6200 in the near term.

The current interbank midrate is: NZDUSD 0.6185
The interbank range this week has been: NZDUSD 0.6155- 0.6273

FX Update

Key Points:

With Russia pulling out of the Black Sea grain agreement this is not expected to have a massive impact on US food prices and inflation.
We see a 25% chance the US will fall into recession over the next 12 months.
Australian Inflation cooled more than expected for quarter 2, 2023 easing pressures on the Bank of Australia to raise rates at the next policy meeting 1st August.
The ECB raised their cash rate to 3.75% from 3.5% this morning as expected, the central bank going ahead with further tightening to combat high inflation despite fears of a recession.
US advanced GDP 2.4% vs 1.8% expected.
The Japanese Yen (JPY) is the strongest performer over the week with the Euro (EUR) the worst performer.

As we predicted last week we have seen further buying of EUR with price reaching a fresh low of 1.6600 (0.6025) mid last week against the Australian Dollar (AUD) a 3-month low. The Aussie fought back off the Monday open to trade back at 1.6400 (0.6100) levels after eurozone manufacturing and services data came in poor. Australian CPI y/y prints Wednesday and is predicted to come way down off the current 7.0% to around 5.5% forecast, anything higher than this could spike the AUD. This is followed by the ECB refinancing rate Thursday evening when we expect the ECB to hike 25 points to 4.25%. Comments should be hawkish around further policy tightening required. We expect the pair could retest 0.6000 (1.6660) areas.

Current Level: 0.6080 (1.6447)
Resistance: 0.6160 (0.6780)
Support: 0.6040 (1.6230)
Last Weeks Range: 0.6023-0.6105 (1.6380-1.6602)

The Australian Dollar (AUD) reversed off 1.9140 areas Monday back to 1.8990 against the British Pound (GBP), UK data undermining the Pound. Although Retail Sales Friday turned in a positive result at 0.7% vs 0.2% for June Manufacturing PMI has undone any momentum the GBP had. Figures show a considerable slowing of business and manufacturing output, the worst in 6 months. We see odds of a hike from the Bank of England (BoE) of 50 points now slim in the aftermath of this cooler data with calls for just 25 points to 5.25% on August 3rd. A light data docket in the cross should see the GBP weaken further confirmed by higher highs and higher lows on the chart.

Current Level: 0.5251 (1.9043)
Resistance: 0.5405 (1.9340)
Support: 0.5170 (1.8500)
Last Weeks Range: 0.5189-0.5305 (1.8849-1.9271)

The Australian Dollar (AUD) closed the week around 0.6255 against the US Dollar (USD) declining more than 1% on the week. Prices into Tuesday are bouncing around open levels as we await key data this week. Australian CPI was predicted to cool fast over the year with Wednesday’s release expected to confirm this with a much anticipated 5.5% print from 7.0% y/y for June. If we see this number we can expect the RBA will be relieved and take onboard a more relaxed policy approach, however one can never rule out further hikes. The Federal Reserve policy and cash rate release is Thursday Morning with a hike most likely of 25 points expected taking the cash rate to 5.50%. Powell’s objective is to soften the US economy enough to not send it into a recession. The question remains- how much inflation can he tolerate to not hike Thursday and over the remainder of 2023. We predict an improvement in price with a possible retest of the 0.6800 zone.

Current Level: 0.6731
Resistance: 0.6700
Support: 0.6600
Last Weeks Range: 0.6721-0.6847

Price in the Euro (EUR), New Zealand Dollar (NZD) cleared solid support Monday at 0.5555 (1.8000) to reach a fresh low of 0.5535 (1.8070) matching an August 2020 level. An underperforming EUR post a slew of eurozone manufacturing and services industry reads sent the Aussie higher retracing a chunk of last week’s declines. Manufacturing in the region looks asleep at the wheel, the worst result in months. Indicators point to slowing weakness in the second and third quarters. All eyes will be on the ECB cash rate release Thursday night NZT with an expected hike of 25 points to 4.25% with rhetoric suggesting a halt to the tightening cycle although a hawkish approach is predicted based on stubbornly high inflation.

Current Level: 0.5595 (1.7873)
Resistance: 0.5700 (1.8050)
Support: 0.5540 (1.7545)
Last Weeks Range: 0.5541-0.5678 (1.7612-1.8047)

The New Zealand Dollar (NZD) reached the outer range low Monday around 0.4790 (2.0880) against the English Pound (GBP) before reversing back to 0.4835 (2.0680) early this morning the kiwi making back some of last week’s losses. UK Retail Sales printed better than expected at 0.7% vs 0.2% forecast for the month of June showing a reflection of “summer sales” in the region. Soft UK Manufacturing has signalled a slowing theme along with Chinese authorities pledging to increase policy supports all supported the kiwi. We don’t have any further data to publish in the pair over the rest of the week suggesting price could continue to bounce around in recent zones.

Current Level: 0.4830 (2.0703)
Resistance: 0.4880 (2.0880)
Support: 0.4790 (2.0490)
Last Weeks Range: 0.4786-0.4880 (2.0492-2.0892)

Price in the New Zealand Dollar (NZD), Australian Dollar (AUD) pair reversed off 0.9160 (1.0920) support Monday on its way to 0.9235 (1.0830). The area around 0.9160 represents 61.8%, major “fib” support from the recent low at 0.9050 (1.1050) and the high at 0.9320 (1.0730) highlighting subsequent moves higher. As I write we are back towards 0.9210 (1.0860) area with further moves predicted towards 0.9260 (1.0800) over the coming hours/days. Aussie CPI q/q ending June should print at 1.1% down from the first quarter result of 1.4% and more importantly the 3y/y figure should drop to around 5.5% from 7.0%. Anything higher than 5.5% may give the RBA cause for concern and increase flow back into the AUD.

Current Level: 0.9196 (1.0864)
Resistance: 0.9320 (1.1043)
Support: 0.9055 (1.0727)
Last Weeks Range: 0.9162-0.9325 (1.0732-1.0914)

The New Zealand Dollar (NZD) has made attempts to regather last week’s losses Monday improving off 0.6155 to 0.6215 this morning against the US Dollar (USD). Equity markets were back in black overnight after extended moves to the downside over the past week kept the kiwi weighed down. We are optimistic we may see a push higher over the week by the kiwi as we watch the key Federal Reserve rate release Thursday. The Federal Reserve will most likely hike just 25 points to 5.5%. Market will be watching for clues as to whether the Fed will halt its tightening policy as analyst’s fear a hard fall to the economy looms.

Current Level: 0.6191
Resistance: 0.6390
Support: 0.6065
Last Weeks Range: 0.6163-0.6366

Market Overview:
Key Points:

• The Bank of Japan is expected to adjust monetary policy this week from their ultra loose stance
• We see a 25% chance the US will fall into recession over the next 12 months.
• NZ Trade Surplus showed a smaller month of June at NZD9M surplus compared to a consensus of NZD235M highlighted by a slowing global economy and the NZ recession weighing on imports.
• Analysts are predicting a hike in July and again in September to the ECB cash rate.
• The Fed is predicted to lift rates by 25 points to 5.50% Thursday at 6am NZT-we expect the normal volatility. Interest will be centred on any clues to if they will raise again or hold policy for some time.
• The ECB is expected to deliver a 25-point rise to its cash rate taking it to 4.25% with the ECB not done yet with rate hikes despite inflation softening recently from 6.1% to 5.5%.
• Latest IMF world growth forecast releases later today with expectations a further slide to growth from 2.9% in January to 2.8% is predicted in 2023.
• The Canadian Dollar (CAD) is the strongest performer over the week with the British Pound (GBP) the worst performer. Read more