Daily Currency Update

The Australian dollar moved sharply lower through trade on Friday slipping back below 0.75 U.S cents and touching intraday lows at 0.7440. Having moved back below the 0.76 handle mid-week after the U.S Federal Reserve delivered a somewhat hawkish monetary policy statement in support of an accelerated pace of monetary policy tightening and labour market data failed to inspire amendments to RBA policy expectations the AUD was poised for a deeper downside as investors sought to correct short-term outperformance.

Enter renewed concerns surrounding global trade policy and the introduction of $50 billion in US Tariffs on Chinese Imports. President Trump’s announced a 25% tariff would be imposed on nearly 700 U.S goods reigniting fears a tit for tat trade war will dampen demand and de-rail the global economic recovery. Risk appetite evaporated, and the AUD feel through 0.75 and 0.7450 before finding support near year to date lows.

Opening this morning buying just 0.7436 U.S cents attentions remain focused on escalating trade tensions while the RBA’s June meeting minutes headline what is otherwise a quiet domestic docket. We expect direction will largely be driven by investors demand for risk and offshore stimuli as support holds at 0.7430, however a break below this handle prompting a possible shift toward 0.7330/35 and 0.7280.

The New Zealand dollar finished lower for the week after seeing highs of 0.7050 in the lead up to Thursdays US Federal Reserve increase in interest rates to a range of 1.75-2.00%. A shifting focus to Europe’s ECB meeting saw a major drive back into the US Dollar after the announcement to end QE and the Kiwi moving back lower through the 70 US cent handle.

Continuing its drive lower on Friday morning, the latest Business NZ Manufacturing Index reading was lower after the level of expansion for the sector reduced for the month of May. The NZD/USD cross saw an eventual close of 0.6960 for the week and has drifted on open this morning to 0.6935.

Today there is little on the horizon in terms of domestic releases that will sway the New Zealand dollar as investors look towards Thursdays GDP print for the quarter whereby the forecast is a reading of 0.5%.

The Great British Pound is again weaker this morning when valued against its US counterpart as investors rushed back to buy the greenback. As a result on Friday the GBP/USD pair fell to a low of 1.3215 just a couple of pips away from the yearly low of 1.3203 set at the end of May (29th).

Looking ahead this week and all eyes will be on Thursday’s interest rate announcement. The rate decision is usually priced in the market, so it tends to be overshadowed by the Monetary Policy Summary, which is focused on the future. We are expecting the official cash rate to remain steady at 0.50%.

From a technical perspective, the GBP/USD pair is currently trading at 1.3272. We continue to expect support to hold on moves approaching 1.3240 while now any upward push will likely meet resistance around 1.3300.

The Greenback strengthened ever further to close out last week as President Trump signals $50b worth of tariffs on Chinese imports. The Chinese government then responded in-kind leading to a risk-off environment for investors and sending the USD higher. With President Trump vowing to respond to Chinese retaliation with further tariffs, the stage is set for a potential trade war that may hurt global growth and risk assets.

As expected, commodities and commodity currencies bore the brunt of the tariff related headlines with the Greenback strengthening against the NZD, CAD and AUD. The EUR however managed to recover slightly in the wake of the ECB meeting on Thursday.

Opening this morning at 94.79, the DXY remains relatively unchanged, reporting a small 0.09% drop. Attentions now turn to further news from the Whitehouse and an ECB statement on Tuesday for direction.

The Euro recovered some ground towards the end of Friday’s session after trading to a new monthly low around 1.1550, it managed to close up 0.4% at 1.1610 versus the USD.

US and China tariff war headlines didn’t help risk sentiment on Friday but the Euro was able to pare some of the weekly losses after Thursday ECB decision and cautious commentary about future growth, lack of inflation and interest rate expectations.

It seems like the 1.1550 level plus large options expiring at 1.15 acted as good support for the EURUSD but the common currency is opening weaker today, below the 1.16 mark apparently on some disagreements around asylum policy within the Angela Merkel’s coalition government.

From a technical perspective, 1.1550 first and then 1.1508, (May low) should provide short-term support on the EURUSD while 1.1653 (June 5 low), should act as first resistance on any upside move. Additionally, keep an eye on headlines coming from the ECB’s Forum on Central Banking, Mario Draghi will be taking the stage and then will have a panel with other Central Bankers including Kuroda (Japan), Lowe (Australia) and Powell (US).

The US-China tariff drama weighted on risk sentiment on Friday, and commodity currencies like the loonie were the most affected on the broad USD strength move. The Canadian dollar dropped to its lowest level since June 2017, with the USDCAD closing 0.6% higher at 1.3184.

Oil was down almost 4% ahead of an OPEC meeting further weighting on the CAD, which ended up loosing against all of its G-10 partners. Additionally, weaker than expected manufacturing data (-1.3% vs. +0.6% expected) intensified the move up for the USDCAD.

The loonie is opening Monday’s session even weaker, with USDCAD above the important technical level of 1.32, which is at the moment acting as resistance. First support should now be found around 1.3040.