Kiwi buoyed by risk rally off the back of US-China trade optimism
Tuesday 26 February, 2019
Daily Currency UpdateThe New Zealand Dollar climbed higher through trade on Monday, buoyed by reports Trump has extended the March 1st deadline for higher Chinese import tariffs. After a 90 day détente US tariffs on Chinese imports were scheduled to increase from 10% to 25% this Friday but recent optimism surrounding trade talks has bolstered expectations a new trade plan will be struck and an increase in trade taxes will be avoided. The uptick in trade optimism has bolstered risk appetite and fueled rallies across the CNY, AUD and NZD. The NZD jumped five tenths of a percent to touch intraday highs at 0.69004 before profit taking forced a consolidation at 0.6885.
Markets have largely shrugged aside rumors the RBNZ will introduce new measures to sure up the banking system, possibly forcing a shift to looser monetary policy later this year. Having suffered a Knee jerk reaction to comments from deputy governor Bascand on Friday the NZD has found support in heightened demand for risk. Having traded toward to the top end of recent ranges our attentions remain with global risk trends while Bascand is due to speak on changes to bank capital requirements, shedding more light on Friday’s comments and possibly opening the door to a kiwi correction. Should the RBNZ elect to increase banks capital holding requirements its likely tighter financial conditions will force a rate cut in a bid to maintain growth, subsequently weighing on the NZD and forcing a move back toward 0.67 U.S cents.
Key MoversThe Australian Dollar enjoyed some fortuitous news overnight that saw the Aussie amongst the best performing currencies. President Donald Trump has extended the pause on higher tariffs for Chinese imports, in turn supporting Chinese equities, the Chinese Renminbi and China proxies, the Kiwi and Aussie. Opening this morning at 0.7169, the Aussie looks well poised to take further cues from off-shore events.
The continuation of the ceasefire did have some supporting comments from the President that buoyed market bulls. Trump via his favourite medium, Twitter, also mentioned that “substantial progress” had been made on “important structural issues including intellectual property protection, technology transfer, agriculture, services, currency and many other issues”. Trump also raised the idea of a signing summit with President Xi, adding that “we are getting very very close”. According to reports, one of the main final issues is the enforcement mechanism with Chinese media reports suggesting the negotiations only get more difficult from here.
Moving into Tuesday the Aussie dollar again enjoys a quiet day on the economic calendar with direction to be driven out of the United States with Fed Chair Powell testifying before the Senate.
The Great British Pound moved higher overnight to test the 1.3100 handle after opening the week at 1.3050. Positive movements were seen during the UK trading session as suggestions of another Brexit delay to the March 29th deadline sparked the markets interest. Rumours swirling of a 21-month delay to 2021 circled the media confirmed by an anonymous European official.
Bank of England Governor Mark Carney stated overnight that a hard Brexit is the riskiest scenario and would hinder the stabilisation of the local economy and financial services industry.
Spikes in the Sterling were erased following a rally on the greenback following President Donald Trumps decision to extend the trade deadline between the United States and China as progress looks to have been made over the past 90 days.
The Sterling opens 0.35% higher at 1.3095 this morning and will takes its cues from this evenings Inflation report hearing.
The Greenback pulled back on Monday as risk appetite increased after U.S. President Donald Trump said he would delay a planned hike in tariffs on Chinese imports, suggesting trade negotiations between the two countries have made significant progress. On the back of the news global equity markets advanced.
This Tuesday, the macroeconomic calendar will be quite scarce, with the only release Residential Building Permits and New Housing Starts.
From a technical perspective, the Greenback is slightly weaker against the Australian dollar this morning trading at 0.7167. We continue to expect support to hold on moves approaching 0.7130 while now any upward push will likely meet resistance around 0.7180. The New Zealand dollar also gained against the Greenback up 0.6 percent to 0.6880.
The EUR initially rose 0.3% against the greenback overnight as Finance minister Olaf Sholz proclaimed that he expected the German economy to escape a recession. Markets interpreted this as a possible indication of an upward trend in European economic growth after a bleak few quarters. EUR/USD jumped from 1.1340 to 1.1368 on the news before retreating into this mornings open with the pair currently changing hands at 1.1351.
The Aussie dollar outperformed across the board, seeing AUD/EUR rise from 0.6296 to 0.6325 before retreating slightly into this morning’s open of 0.6310. In terms of Euro area releases we have national consumer confidence surveys released for France and Germany with neither expected to be market movers. NZD/EUR traders will also be closely watching RBNZ governor Bascand’s capital review speech which is expected to kick off at 12:30pm NZD.
Given overnight moves, initial AUD/EUR supports can now be seen at the key psychological level of 0.6300 before 0.6287. We also expected the pair to come under selling pressure at 0.6325 as yesterdays daily high now represents the pairs first line of resistance.
The Canadian Dollar has weakened against the Greenback in the last 24 hours, the USD/CAD rate has moved from a low 1.3114 to a high of 1.3197. The main catalyst for the move was a 2% drop in crude prices that led to a 70 pip bounce from the European low of 1.3114. Oil tumbled the most in four weeks after U.S. President Donald Trump tweeted that prices are too high and called on OPEC to “relax and take it easy.”
Corporate Profits are scheduled for release today. Canadian corporations posted a strong increase of 3.9% in profits during Q4, marking a third consecutive expansion. Will the positive trend continue in the fourth quarter?
On the technical front, first line of support sits a 1.3125 and 1.3049. On the flip side, resistance is up at 1.3200 and 1.3290.
- NZD/AUD: 0.9550 - 0.9690 ▼
- GBP/NZD: 1.8880 - 1.9250 ▼
- NZD/USD: 0.6770 - 0.6920 ▲
- NZD/EUR: 0.5980 - 0.6120 ▲
- NZD/CAD: 0. 8980 - 0.9130 ▲