Inflation data will be key this week to determining the next move by the New Zealand Dollar (NZD), US Dollar (USD). With the kiwi travelling close to long term lows recently around the 0.6030 zone it’s an important week, will the NZD finally fall below pivotal 0.6000 or maintain enough buyer support and rally back to levels around 0.6400 seen a couple of weeks back. Certainly, NZ inflation expectations for the 3rd quarter could determine if we see a last-ditch hike by the RBNZ to bring down inflation. US CPI y/y is predicted to rise to 3.3% from 3.0%, the first time since June 2022, which may decide if the US economy falls into recession.
Current Level: 0.6105
Last Weeks Range: 0.6058 – 0.6224
The New Zealand Dollar (NZD), Australian Dollar (AUD) trades at a 10-week low this morning around 0.9125 levels. Yesterday’s Aussie CPI release took price from 0.9235 (1.0830) to 0.9125 (1.0960) as fourth quarter inflation published much higher than markets were anticipating. The Q result 1.9% vs 1.6% pushed the year-on-year figure to 7.8% off 7.3% boosted by rising costs in food, fuel and new dwelling construction. NZ last quarter CPI also printed, but came in moderately above expectations not causing a fuss. The year-on-year number remains at an elevated 7.2%. Interestingly this is down on the 7.5% inflation the RBNZ predicted in November which could mean a less aggressive approach at the 22nd Feb meeting. We may see the current momentum stall out towards 0.9090 (1.1000) as heavy support is pictured on the chart. Looking ahead we have NZ employment numbers Wednesday.
The current interbank midrate is: NZDAUD 0.9115 AUDNZD 1.0956
The interbank range this week has been: NZDAUD 0.9121- 0.9322 AUDNZD 1.0727- 1.0963
The New Zealand Dollar (NZD) pushed higher Monday extending last week’s run through to 0.9260 (1.0800) levels against the Australian Dollar (AUD). Optimism around the re-opening of China has fallen with China reporting its first deaths in over 6 months. This has impacted on risk and importantly Chinese industrial production and ultimately the Redback. The RBNZ are predicted to deliver a 75-point hike Wednesday taking the cash rate to 4.25%, it’s possible the recent rally in the kiwi is pricing in the move. This morning’s Trade Balance data came in light with imports at 8.27B and exports at 6.14B in October creating a shortfall of 2.1B. The good news is that Dairy continues to lead the way in exports with Milk Powder, Butter and Cheese up 34%. This time last week with prices around 0.9090, current levels represent good buying in AUD.
Current Level: 0.9225 (1.0830)
Resistance: 0.9345 (1.1000)
Support: 0.9090 (1.0700)
Last Weeks Range: 0.9088-0.9229 (1.0835-1.1003)
The Australian Dollar (AUD) monstered the British Pound (GBP) off the open yesterday reaching a whopping 0.5640 (1.7730) a 12-month high as conflicts in the Russian war put considerable pressure on the Pound and the UK economy. A corrective move early this morning saw a reversal in the cross to 1.7900 as European leaders said they would hold out on Sanctions of Russian energy exports preferring an alternative strategy to reduce Russian imports which Russia is a major global exporter. Upwardly revised UK Manufacturing PMI hit a 7-month high may have contributed to cushioning the Pound somewhat. Iron Ore and commodities continue to skyrocket with Iron ore trading at 1.56 por tonne a 6-month high. Looking ahead we have a slow week of economic data with just RBA Governor Lowe speaking tomorrow. In the meantime, we should continue to see wild “risk” swings continue. Read more
11am, AUD, Gov Lowe Speaks
4am, CAD, Ivey PMI
All Day, EUR, Italian Bank Holiday
4am, CAD, BOC Rate Statement
4am, CAD, Overnight Rate
Worldwide coronavirus cases surpasses 13.935M with over 591,000 deaths officially reported.
Risk sentiment was positive during midweek trading sessions off the back of prospects of a vaccine contributing to the good mood. Moderna reported that their vaccine produces neutralising antibodies in chosen patients who received two doses, these were similar to results seen in coronavirus patients who had recovered. The results are from an initial 45 sample humans with new trials to begin late this month on 30,000 healthy people. They will compare vaccine results to placebo in patients between the ages of 18-55. If results are significant the vaccine would then be mass produced. Contributing to the positive mood was Merkel who commented that Germany is prepared to compromise to reach a deal for the European Recovery Fund. EU members are scheduled to meet in person on Friday and Saturday to work out a compromise on the multimillion dollar stimulus package.
Worldwide coronavirus cases surpasses 9.7M with over 490,000 deaths officially reported.
The RBNZ left their cash rate unchanged at 0.25% Wednesday at their policy meeting confirming again they would be leaving it for some time. The central bank left their bond purchase program also unchanged at 60B but Orr said they are prepared to provide additional stimulus when necessary. The question is whether the bank has enough stimulus in place as the country prepares for further uncertain economic times. Highlighting the pressures on export earnings due to the appreciation of the NZD implied the government could be preparing to intervene by increasing the current 60B support package in combination with selling the New Zealand Dollar. All said and done the government maintains the view that the current balance of risks remain firmly placed to the downside. Post statement the NZD plunged by around 1.0% across a range of crosses before regaining some losses during overnight sessions.
Worldwide coronavirus cases surpasses 7.5M with over 423,000 deaths officially reported.
The Federal Reserve policy was unchanged maintaining its 0% to 0.25% rate in a vote 10-0 in favour. In a similar reading to April the dovish tone filtered through from Powell given how far off the target mark the economy is tracking with employment and inflation. Powell said making similarities to the Great Depression is a “bad analogy” – while second quarter economic data is the worst on record there are “so many fundamental differences” including a strong economy and healthy financial system prior to Covid-19 lockdown. Although the virus looks to recede a second wave is likely. Although the Fed made note to the improving financial conditions which has limited the need for further QE action in the short term, they clearly will rely on whatever is necessary with unlimited options at their disposal. They will continue with the 80B per month bond buying program. Fed forecasting puts GDP at -6.5% in 2020, 5% in 2021 and 3.5% in 2022. Unemployment is not as bad as previously speculated with figures to peak this year at 9.3%, 6.5% in 2021 and 5.5% ending 2022. The current tone should support further risk buying across the globe with the New Zealand Dollar and Australian Dollar forecasted to push higher yet.
Worldwide coronavirus cases surpasses 7.1M with over 405,000 deaths officially reported.
It was a week of quiet economic headlines with the New Zealand Dollar taking out the top spot as the best performing currency. Risk on sentiment has driven the kiwi to fresh highs along with a number of other reasons, the main one perhaps of which is due to NZ having no new coronavirus cases over the past two weeks with the one person who had the virus recovering yesterday. So formally NZ has no coronavirus. Re-opening trade and business has also gone a long way for boosting the mood along with recent Chinese Manufacturing data coming in better than expected. Yesterday’s Trade Balance – surplus of 62B as exports fell less than expected due to medical related purchases. Certainly markets seem to be focused on these factors rather than the continued US/China trade tensions and mass US protests taking place around the world.