FX News

The Australian Dollar (AUD) continues its advancement against the New Zealand Dollar (NZD) extending gains into the end of the week to 1.0850 (0.9220). A combination of RBNZ dovish views affecting NZD flows and solid data coming out of Australia has seen prices reach 6-week lows. Higher costs in rents, recreation and food have driven up the monthly Australian CPI again to 6.8% from 6.3% y/y. This confirms the ongoing inflationary pressures economy wide and will be disappointing for the RBA as they try to strengthen the case for easing policy. With price pushing past the 100-day moving average at 1.0800 (0.9260) we expect further AUD momentum through to next week’s RBA Tuesday.

The current interbank midrate is: NZDAUD 0.9211 AUDNZD 1.0850
The interbank range this week has been: NZDAUD 0.9215- 0.9307 AUDNZD 1.0744- 1.0851

Key Points:

European Inflation eased from 7.0% to 6.1% year on year.
Australian House prices rose in May, the biggest move since November 2021.
The Federal Reserve awaits crucial Non-Farm Payroll release for ongoing policy guidance.
US ISM May Manufacturing 46.9 vs 47.0 expected.
Chinese Manufacturing Caixin index reported its highest level since June 2022 even though the gauge remained weaker than supply.
Canadian Manufacturing 49.0 vs 50.2 prior, based on softer new orders and less output.
Rate hikes are starting to have an impact on inflation- ECB’s Villeroy. Meanwhile Lagarde commented that the ECB needs to continue with hiking and is confident they can return inflation back to their 2% target over the following months.
The US Dollar (USD) has been the worst performer this week, the best performer has been the Japanese Yen (JPY).

The long-term bear trend resumed last week in the Australian Dollar (AUD), Euro (EUR) cross with price reaching 0.6060 (1.6500) a 3-week low. Risk sentiment improved Monday after US Debt Ceiling negotiations came to an agreement pushing the Aussie to 0.6120 (1.6370) On the docket this week we have Australian CPI y/y Wednesday, expected to print around 6.4% for the month of April, up from March’s 6.3% a spike in the figure may give the AUD upside bias.

Current Level: 0.6099 (1.6396)
Resistance: 0.6175 (1.6800)
Support: 0.5950 (1.6190)
Last Weeks Range: 0.6055-0.6164 (1.6222-1.6515)

The Australian Dollar narrowly avoided slipping past the long-term level of 0.5265 (1.9000) late in the week against the British Pound (GBP). The risk averse mood weakened the Aussie along with a UK Retail Sales surprise print. Retail Sales came in at 0.5% instead of the predicted 0.3% for the month of April bringing back buyers to the GBP. The UK’s economy is on the cusp of falling into an extended period of sluggishness as high interest rates affect business investment, as rates are predicted to stay higher for longer. It could be a long time before the BoE achieves their 2.0% inflation target. We think 0.5260 (1.9020) low of Jan 2022 should hold for now.

Current Level: 0.5288 (1.8910)
Resistance: 0.5415 (1.9150)
Support: 0.5220 (1.8470)
Last Weeks Range: 0.5270-0.5359 (1.8658-1.8975)

US markets were closed Monday for Memorial Day making for a slow day across currencies. We did get a little upside off the weekly open as risk improved after US debt ceiling negotiations concluded positively between Biden and McCarthy with an agreement of sorts. The US Dollar (USD) slipped as the Australian Dollar (AUD) improved to 0.6550 in thin trading conditions. US Manufacturing data prints Friday along with the ever-important US Non-Farm Payroll and unemployment rate. We expect another decent Non-Farm figure following 13 months of positive numbers. Every publication going back to early 2022 has sent the AUD higher post release. Something to keep in mind. On the chart we don’t see much support for the AUD as it heads into the abyss eying 0.6200.

Current Level: 0.6531
Resistance: 0.6800
Support: 0.6500
Last Weeks Range: 0.6489-0.6667

The New Zealand Dollar (NZD) fell from its 10-week high of 0.5825 (1.7170) mid last week to close at 0.5640 (1.7730) against the Euro (EUR). US debt ceiling news has been positive Monday after a deal was reached sending the greenback lower and risk currencies higher, the kiwi making small gains into Tuesday to 0.5660 (1.7660). Setbacks in the Euro have been well supported of late with decent data publishing. German prelim CPI releases tomorrow and is predicted to be around 0.2% after contracting -0.3% in the first quarter of 2023. With potentially no further hiking on the radar from the RBNZ we may see the NZD weaken further towards the yearly low at 0.5530 (1.8080)

Current Level: 0.5644 (1.7717)
Resistance: 0.5715 (1.8070)
Support: 0.5535 (1.7500)
Last Weeks Range: 0.5636-0.5826 (1.7163-1.7741)

The New Zealand Dollar (NZD) has found itself perilously close to the multi-year low of 0.4880 (2.0500) as we head into the week. Spanked last week by news that the RBNZ may have finished their tightening policy the news took the kiwi from 0.5040 (1.9850) to 0.4900 (2.0400) where it has managed to consolidate. Risk sentiment improved off the open as news that the US President had negotiated a new debt ceiling, the NZD making small gains into Tuesday as the greenback was sold. With the Bank of England setting up to hike rates again 25 points in June, August, and September we expect the Pound to continue to strengthen.

Current Level: 0.4895 (2.0429)
Resistance: 0.5060 (2.0520)
Support: 0.4875 (1.9770)
Last Weeks Range: 0.4894-0.5064 (1.9746-2.0431)

The Australian Dollar (AUD) extended gains Monday against the New Zealand Dollar (NZD) reaching 1.0800 (0.9260) as it targets the monthly high of 1.0835 (0.9230). Clearly the recent RBNZ stance to halt further hiking has had a detrimental effect on the currency putting it under severe pressure. Australian CPI for the month of April prints tomorrow on the docket, we expect this to be around 6.4% slightly higher than the March release. With price moving through the 100-day moving average this morning we could see more upside develop in the Aussie. However, the NZD carry trade still needs to be considered.

Current Level: 0.9256 (1.0800)
Resistance: 0.9470 (1.0900)
Support: 0.9174 (1.0560)
Last Weeks Range: 0.9273-0.9471 (1.0558-1.0783)

The New Zealand Dollar (NZD) has fallen to its lowest level since November 2022 after a slump post last week’s RBNZ policy announcement. The kiwi traded down to 0.6032 late last week and sits around 0.6055 this morning. The RBNZ has paused its hiking schedule after raising rates to 5.50%, a 14-year high. Word is it should stay here until mid-2024. We are not sold on the idea of the kiwi entering a downward spiral in the coming months- moves to the topside would represent the positive “carry trade” scenario against the USD. After all, it’s the only mainstream currency which has a higher interest rate than the US at 5.25%. Let’s see what happens. Certainly, with the US debt ceiling negotiations between Biden and McCarthy being agreed this has boosted risk appetite, but not as much as would have thought, making the kiwi undervalued. Later in the week we have US Non-Farm Payroll and the Unemployment rate publishing.

Current Level: 0.6046
Resistance: 0.6360
Support: 0.6000
Last Weeks Range: 0.6032-0.6301

Market Overview

Key Points:

• US Debt ceiling negotiations have been reached. US House speaker McCarthy and President Biden have come to an agreement to raise the debt ceiling of 31.4Tn until January 2025 allowing the US government to not default on its debt obligations. It’s said that the capital raising exercise will trim 0.1% off next year’s GDP.
• Predictions are for the RBA to hold interest rates at the June 4th meeting while a hike at the 4 July meeting looks favourable.
• Federal Reserve rate forecasts for June look to be a close call. The Fed needs 3 items to consider hiking- strong economic data releases, debt ceiling increase (check) and a softening in the regional bank stress.
• ECB’s Makhlouf says upward pressures on inflation have slowed but food prices are still rising leading to his opinion that hikes are needed in June and July. He believes the Eurozone can achieve its inflation target without dropping into a recession.
• Chinese Industrials fell 18.2% y/y in April following a 19.2% dip in March.
• Geopolitical tensions between Japan and North Korea increase.
• The US Dollar (USD) has been the best performer in the month of May compared to the Japanese Yen (JPY) , the worst performer. Read more