JPY

Market Overview

Key Points:

• Risk currencies recovered Monday which is a small miracle if we look at how ugly the markets have been of late. The greenback is lower, and equities have started the week well.
• Australian Retail Sales +0.9% vs +0.3% releasing much higher than predicted. This will be adding to the case for an interest rate hike at the RBA’s 7th November meeting.
• Bank of Canada’s Macklem is suggesting the BoC (Bank of Canada) will need to raise policy to restore price stability. It’s reported that the Canadian economy may be headed for a sharp pullback into a recession early next year.
• Crude Oil has fallen over 3.5% in overnight trading to 82.55 as geopolitical fears in Gaza ease. We expect prices to drop in the coming days as OPEC tightens global supply/demand.
• German inflation eased in October contracting 0.3% y/y for the third quarter to 0.0% from 0.3%. This takes the y/y number to 3.8% down from 4.5%
• The Federal Reserve look to be finished with rate hikes saying they expect rates to stay high for an extended period before aggressive hikes kick in, in 2025.
• The Swiss Franc (CHF) has been the strongest currency in the month of October while the New Zealand Dollar (NZD) has largely underperformed and is by far the worst performer.

The New Zealand Dollar (NZD) looked good Monday rising to 0.5870 against the US Dollar (USD) but stalled around this area as markets turned “risk off” and the kiwi was sold. Global uncertainties in Gaza are attributing to broad buying of USD, the kiwi easing lower into Friday clocking 0.5775 a 1 year low in the pair. A flurry of US data in the form of Durable Goods, advance GDP, 4.9% q/q vs 4.5% forecast, jobless claims and pending home sales have held up the greenback. On the docket next week, we have NZ jobs numbers, unemployment is predicted to rise from 3.6% and key Fed Funds Rate announcement, we expect the Fed to leave rates unchanged at 5.5%. In a very bear market, we expect the kiwi to fall further from current levels. If we look at the chart we see thin air to support at 0.5550. I know it hurts to buy USD at these levels but many need to consider that in several weeks/months we could be staring down the barrel.

The current interbank midrate is: NZDUSD 0.5820

The interbank range this week has been: NZDUSD 0.5772- 0.5869

The New Zealand Dollar extended declines this week against the Australian Dollar (AUD) reaching 0.9165 (1.0910) a new 26 July 2023 low. The Aussie gained on higher-than-expected CPI in September coming in at 5.6% y/y after 5.3% was forecast. The RBA did not comment on whether they will consider raising rates at their November 7 meeting suggesting the outcome is within range of what they were expecting. We don’t believe a word of it with markets positioning for a rise from 4.10%. Next week’s NZ Jobs data is our focus, unemployment predicted to rise above 3.6%. On the chart downside moves look limited for now with solid support at 0.9175 (1.0900)

The current interbank midrate is: NZDAUD 0.9197 AUDNZD 1.0868

The interbank range this week has been: NZDAUD 0.9163- 0.9244 AUDNZD 1.0817- 1.0913

The Australian Dollar (AUD) extended moves higher in the second part of the week against the New Zealand Dollar (NZD) reaching 1.0840 (0.9225) in what has been the biggest single week rally by the AUD this year after it opened around 1.0640 (0.9400). The kiwi has underperformed across the board, none more than against the AUD. Australian job’s data helped the cause when the economy added fewer jobs in September, the unemployment Rate easing off 3.7% to 3.6%. Punters are now starting to forecast a rate hike at the RBA’s meeting on 7 November unless we see a proper dip in next week’s inflation report. We are seeing some consolidation around the 0.9240 (1.0820) area heading into the weekly bell.

The current interbank midrate is: NZDAUD 0.9231 AUDNZD 1.0826

The interbank range this week has been: NZDAUD 0.9224- 0.9401 AUDNZD 1.0637- 1.0841

Stress around global markets this week has seen the “risk” correlated New Zealand Dollar (NZD) struggle a smidge. Clocking a new daily close for 2023 yesterday at 0.5815 this is the weakest the NZD has traded since October 2022. Tensions are red hot in Gaza with investors waiting to see how things will pan out. We have seen some consolidation heading into Friday with the kiwi recovering to 0.5950. Earlier US Retail Sales surprised, printing much higher than the predicted 0.2% at 0.7% causing a selloff in the bond markets. Chances of the Fed hiking interest rates on Nov 2nd increasing to 50/50. The Israel/Hamas war and humanitarian crisis will no doubt keep the kiwi in a bear mood looking ahead.

The current interbank midrate is: NZDUSD 0.5842

The interbank range this week has been: NZDUSD 0.5815- 0.5928

The Australian Dollar (AUD) broke below 0.6020 (1.6620) late last week on its way to clocking a fresh 4 week low of 0.5990 (1.6700) against the Euro (EUR). Monday’s action has seen a pull back towards 0.6015 (1.6630), the test will be if the Aussie can hold above the key level at 0.6000 (1.6660). This week on the calendar we have Australian employment data Thursday expected to print unchanged at 3.7%. Geopolitical tensions in Gaza are Euro supportive. An Israeli advance on Gaza will almost certainly send the Aussie lower.

Current Level: 1.6661
Resistance: 1.6710
Support: 1.6430
Last Weeks Range: 1.6443 – 1.6703

The Australian Dollar (AUD) broke below 0.6020 (1.6620) late last week on its way to clocking a fresh 4 week low of 0.5990 (1.6700) against the Euro (EUR). Monday’s action has seen a pull back towards 0.6015 (1.6630), the test will be if the Aussie can hold above the key level at 0.6000 (1.6660). This week on the calendar we have Australian employment data Thursday expected to print unchanged at 3.7%. Geopolitical tensions in Gaza are Euro supportive. An Israeli advance on Gaza will almost certainly send the Aussie lower.

Current Level: 0.6002
Resistance: 0.6090
Support: 0.5985
Last Weeks Range: 0.5986 – 0.6081

Risk flow has supported the British Pound (GBP) over the past couple of weeks, the Australian Dollar (AUD) slipping from 0.5305 (1.8850) to 0.5195 (1.9260) this morning. Bank of England’s (BoE) Bailey has said the economic outlook looks “subdued” and that monetary policy is restrictive. We expect more hikes ahead, but what could determine this is tomorrow’s UK inflation read which has been ‘sticky” at best over the past couple of months. We predict a drop to 6.6% y/y down from 6.7% likely to not get the central bank overly excited. A retest to 0.5170 (1.9350) looks likely.

Current Level: 1.9275
Resistance: 1.9350
Support: 1.8950
Last Weeks Range: 1.9045 – 1.9325

The New Zealand Dollar (NZD) extended losses to close the week out around the 0.5605 (1.7840) zone against the Euro (EUR), caught up in “risk off” sentiment from uncertainty brewing in Gaza. NZ elections over the weekend confirmed a new National led economy is set to take the reins, this boosted the NZD to 0.5635 (1.7750) before falling back to 0.5610 (1.7830) in early morning trade. NZ inflation printed at 1.8% for the quarter ending September confirming a small drop in the year-on-year number from 6.0% to 5.6% with talk the RBNZ will still need to hike one more time prior to year-end. Geopolitical uncertainty is never good for risk currencies, the kiwi is no exception.

Current Level: 1.7898
Resistance: 1.8040
Support: 1.7530
Last Weeks Range: 1.7507 – 1.7855

The New Zealand Dollar (NZD) extended losses to close the week out around the 0.5605 (1.7840) zone against the Euro (EUR), caught up in “risk off” sentiment from uncertainty brewing in Gaza. NZ elections over the weekend confirmed a new National led economy is set to take the reins, this boosted the NZD to 0.5635 (1.7750) before falling back to 0.5610 (1.7830) in early morning trade. NZ inflation printed at 1.8% for the quarter ending September confirming a small drop in the year-on-year number from 6.0% to 5.6% with talk the RBNZ will still need to hike one more time prior to year-end. Geopolitical uncertainty is never good for risk currencies, the kiwi is no exception.

Current Level: 0.5587
Support: 0.5545
Resistance: 0.5705
Last week’s range: 0.5600 – 0.5712