Kiwi unsteady as CNY depreciation deepens
Tuesday 24 July, 2018
Daily Currency UpdateThe New Zealand Dollar gave up gains enjoyed into last weeks close through trade on Monday as deeper depreciations in the CNY weighed on the unit. Having touched intraday highs at 0.6825 the NZD gapped lower and fell back through 0.68 to touch 0.6775 and open buying just 0.6784 U. S Cents.
Despite reasonable and improving domestic economic performance New Zealand’s exposure to a global slowdown, in particular the Chinese value chain has driven the Kiwi to record short positions and been a primary catalyst for the renewed downside. However recent strength across commodity prices has helped firm support on moves toward 12 month low and 0.67.
Attentions remain with ongoing geo-political developments as the primary driver through the short term with macroeconomic focus on the Bank of Japan and reports the monetary policy framework may shift come next weeks policy meeting. The impact on global bond markets was significant and may force a short term correction in direction.
Key MoversHaving opened a shade above 74c at the start of early Asian session, the Australian Dollar came under selling pressure as Monday kicked into full swing. The AUD/USD touched a low of 0.7373 against the US Dollar and with little local data the Aussie remained centred on Chinese currency developments. China’s central bank injected 502 billion Yuan to financial instructions via its one-year medium-term lending facility (MLF) with rates unchanged, a move which was totally unexpected by the market.
Weighing further on the Aussie was U.S data released by the Federal Reserve Bank of Chicago. The National Activity Index boosted by the upbeat production-related indicators jumped up to 0.43 in June from -0.45 in May a move that pushed the US Dollar index higher. On the commodity front, oil, gold and base metal prices were all a tad lower.
The economic calendar is light ahead of tomorrow’s CPI. We see immediate support at 0.7345 and resistance can be seen at 0.7400
The Great British Pound is slightly weaker this morning when valued against its US counterpart reaching session high yesterday of 1.3157 before settling around 1.3100 on the back of and another round of negative Brexit headlines. Investors have been selling-off their Sterling positions ever since former Foreign Secretary Boris Johnson and Chief Brexit negotiator David Davis resigned from their relative Government positions. Looking ahead today the Pound Sterling will most likely follow any continued Brexit politics.
On the data front today in the UK and its fairly light on the macroeconomic calendar with the only release CBI (Confederation of British Industry) Industrial Order Expectations. Data from the CBI survey is closely watched by the market and often gives a timely indication of economic trends. The survey forecast is to come out at 10 from 13 previously.
From a technical perspective, the GBP/USD pair is currently trading at 1. 1.3080. We continue to expect support to hold on moves approaching 1.3100 while now any upward push will likely meet resistance around 1.3155.
The United States Dollar shook off President Trumps Friday tweets in overnight trading to begin its recovery against a number of the major currencies. The US Dollar Index is up 0.28% this morning, as demand for the greenback returned to the market.
The Catalyst for the reversal of fortunes, albeit small, was the upbeat data from the Federal Reserve Bank of Chicago which showed the National Activity Index rise to 0.43 in June. However, the good news was significantly counter-balanced by a 0.6% reduction in existing home sales. The good start continued for the Greenback however, as commodity currencies began to depreciate against the USD when China announced it would inject $74b of liquidity into the market, further easing their accommodative monetary policy. The CNY immediately plunged 0.4% which contributed to declines across the board for commodity currencies. The Greenback strengthened further again, as rumours of tweaks at the Bank of Japan to monetary policy reverberated around the market, driving global bond yields higher and increasing demand for the US Dollar. Overall, it was a perfect storm for the United States as sentiment dictated direction for much of the day.
Moving into Tuesday, the United States turns to a fairly quiet domestic docket with only Markits Manufacturing and Services PMI figures and Richmond Fed’s Manufacturing Index to excite markets.
The Euro was not able to continue with the strength seen on the Asian session, which saw EURUSD reaching a high of 1.1750, and closed 0.30% weaker at 1.1692.
The USD started the week weaker versus all major currencies following a report that ignited a spike in Japanese yields and the JPY. But traders turned their attention onto the US earning season and expectations of a strong GDP number this week. The JPY turned around, US yields spiked and the USD followed.
Support for the EURUSD is sitting at the June 5 low of 1.1653 while 1.1750 should continue to act as resistance.
This week will bring PMI numbers plus the ECB meeting.
The loonie couldn’t hold onto the Asian session gains, which saw the USDCAD trade as low as 1.3115, and ended up the session 0.20% weaker versus the USD at 1.3172.
The pickup in US yields and broad USD strength saw the loonie reversing gains and the drop in WTI prices further accentuated the correction.
USDCAD continued to trade in the new 1.31/1.32 range, levels that will be acting a
- NZD/AUD: 0.9115 - 0.9235 ▲
- GBP/NZD: 1.9230 - 1.9450 ▲
- NZD/USD: 0.6720 - 0.6830 ▼
- NZD/EUR: 0.5750 - 0.5850 ▼
- NZD/CAD: 0.8880 - 0.8970 ▼