Kiwi recoups losses suffered in Thursday’s Flash Crash
Monday 7 January, 2019
Daily Currency UpdateThe New Zealand dollar edged higher through trade on Friday recouping losses suffered during Thursday’s flash crash and extending back through 0.67 to test week long highs at 0.6750. With little data on hand Friday markets simply unwound the technical decline as risk appetite stabilised and fundamental trading reversed algorithm led moves.
Having found support in a softer USD the Kiwi appears posed to push back through 0.6750 for the first time since December 20. The NZD was one of the worst performers among G10 currencies throughout December as risk-off trade and ongoing US/China trade war concerns weighed on the commodity led unit. Despite having bounced off monthly lows the NZ remains vulnerable to further trade tensions and a failure in market pricing of Fed monetary policy. Traders have seemingly underpriced FOMC rate hikes through 2019 when contrast with a dovish RBNZ could leave the NZD open to a downward correction through Q1.
Key MoversThe first week of the year for the Australian Dollar was one of wild volatility as investors looked to re-enter the market following New Year Holidays. Fridays sessions saw the AUD/USD claw back last week’s losses after a flash crash diminished the Aussie to its lowest levels since the Global Financial Crisis.
Opening Friday morning just above phycological support at 70 US cents, the Aussie traded in a tight twenty pip range into the lead up to the release of Non-Farm Payrolls where the majority of price action occurred.
Despite strong employment figures out of the United States which initially pushed the AUD/USD twenty pips lower, it was dovish remarks from Federal Reserve Chairman Jerome Powell which caused a sell off on the greenback as he suggested rates are just below neutral.
The Australian Dollar enjoyed a run following the comments to eventual highs of 0.7125 and gains of 1.5% for the day. This week the local economy will focus on the release of Trade Balance figures tomorrow as we open this morning at 0.7115.
The Sterling has started the week buying 1.2721 US cents, 1.1167 Euro and 138.03 Japanese Yen at Mondays Sydney open. Last week’s ‘flash crash’ saw the pound fall across the board during Thursday’s trade, as fears of a global economic slowdown, particularly in China, forced investors into save haven currencies such as JPY and USD. Losses were short-lived however, after falling to its lowest levels since April 2017 on Thursday, Friday’s session saw the domestic unit surge against the greenback, rising 0.6% to touch 1.2722.
The resurgence came despite stronger than expected US jobs growth and comments from Fed Chair Jerome Powell regarding the central bank’s sensitivity to market concerns about a U.S. led economic slowdown. Although we did see a strong result in the service sector survey on Friday which aided the pound, we expect the domestic unit to remain under pressure as the effects of an uncertain Brexit situation are starting to be felt, notably in the housing market.
Looking to the week ahead, the first risk event for the pound comes on Wednesday as we have commentary from Bank of England Governor carney followed by GDP and manufacturing production numbers due out on Friday. The numbers will be closely watched by traders who are eager to gauge the magnitude of the Brexit uncertainty on the economy. We see the GBP/USD as being relatively well supported at 1.2655 and 1.2610 on the downside with upside moves expected to face selling pressure approaching technical resistance levels at 1.2745 before 1.2815.
Despite a largely robust labour market report the US Dollar edged lower into last weeks close, following commentary from Fed-Chair Jerome Powell and suggestions the FOMC will adopt a cautious approach to Monetary Policy leading into 2019. Powell affirmed the Fed is no longer on a preset path to higher interest rates and “will be patient as we watch to see how the economy evolves”. The shift toward a more data dependent platform has weighed on the USD in recent weeks as mounting concerns the global slowdown and ongoing China trade war will soon trickle down and begin dampening domestic growth prospects within the US.
Having slipped against the EURO and flattening out against the JPY attentions now turn to Fed commentary/minutes, inflation data and the ongoing political turmoil caused by the Government Shutdown. While domestic data has remained strong and core CPI is expected to remain stable, headline CPI is tipped to decline through December as energy prices weigh on top end data points. Ongoing border security disputes and domestic political tensions are likely to hamper significant USD upside through the short term. Attentions now turn to services data Monday as the headline ticket on the day’s macroeconomic docket.
The EUR rose against the USD to open at 1.14 this open, after recovering from a one week low of 1.1313. This comes off the back of a weaker figure from the Eurostat release of the CPI Flash Estimate which came out at 1.6%, lower than last month’s figure of 1.8%. A sentiment of disappointing European data continues, as soft growth figures and inflation endure from December.
The EU will kick-start the macroeconomic with releases of EU, German and Italian Retail Sales. These releases show the total value of inflation-adjusted sales at the retail level, excluding automobiles and gas stations. The first one being the German data, which comes out later this evening at 6pm.
Another major release for the EUR later this week, is the minutes of the December meeting of the European Central Bank. The ECB sets the monetary policy for the Eurozone, and the minutes will provide insights into the economic conditions that influenced their decision on where to set interest rates.
The Canadian Dollar appreciated significantly over the weekend as US dollar weakness forced the Cad higher. The Loonie was relatively range bound for much of last Friday, trading within 1.3425 and 1.3455 against its US counterpart but ultimately moved into positive territory after the US Federal Reserves’ Powell, undermined the Greenback. Opening this morning at 1.3375, the Canadian Dollar was also well supported from Oil and Inflation data.
Friday was a busy day for the Canadian Dollar which initially released surprisingly positive employment figures on the same day that the US released theirs. The US threatened to move higher on their release but were more-or-less matched by Canada’s result and higher oil prices. The net effect was an almost identical exchange rate to the rate prior to the announcements. The heavy hitting impact came later in the day however when the Federal Reserve’s Chair Powell offered a noticeably more dovish statement than anticipated. The US Dollar fell across the board which also saw the Loonie bounce higher against the Greenback.
Moving into Monday of a new week, the Canadian Dollar looks to more inflation data for direction.
- NZD/AUD: 0.9410 - 0.9590 ▼
- GBP/NZD: 1.8625 - 1.9125 ▼
- NZD/USD: 0.6650 - 0.6830 ▲
- NZD/EUR: 0.5780 - 0.5980 ▲
- NZD/CAD: 0.8950 - 0.9175 ▼