Home Daily Commentaries Risk-on as US imposes its first round of tariffs

Risk-on as US imposes its first round of tariffs

Daily Currency Update

Last week we saw the Kiwi trade in a tight range between 67c and 68c cents vs the Greenback. However, Friday things turned a corner, risk appetite was back and the pair pushed through resistance level of 68c to touch an eventual high of 0.6840 thanks mainly to the first round of tariffs imposed on Chinese imports by the US.




US import tariffs of 25% on $34b of Chinese goods came into effect just after midnight Washington time (NZ 4pm Friday) and China reacted immediately, calling the US actions “unfair” and accused it of violating WTO rules. The tariffs action by the US on China came as a little shock to the world markets, as it was long priced-in and hence, the risk sentiment improved, driving the higher-yielding NZD higher in tandem. Will this last and can the pair hold above 68c? If China retaliates it could change the mood and pull the Kiwi back lower.



The economic calendar is looking pretty light today both domestically and offshore. On the technical front, support seen at 0.6785 followed by 0.6680, with resistance up at 0.6850.

Key Movers

The Australian Dollar is stronger this morning when valued against the US Dollar. The AUD/USD pair closed on Friday at 0.7430, a few pips below a daily high of 0.7443, on the back of a rise in equities as traders shrugged off concerns about a trade war.



To the week ahead, and the economic calendar in Australia is relatively quiet with no major releases. On Tuesday, Australia will release the NAB's business confidence and conditions indexes. Domestic business conditions hit record highs earlier this year, although Australian business conditions for May showed sharp declines (falling six points to +15) in NSW and Victoria.

On Wednesday we will see the release of Westpac Consumer Sentiment. A survey of about 1,200 consumers which asks respondents to rate the relative level of past and future economic conditions, employment, and climate for major purchases.




From a technical perspective, the AUD/USD pair is currently trading at 0.7432. We continue to expect to hold on moves approaching 0.7400 while now any upward push will likely meet resistance around 0.7450.


The Great British Pound pushed higher through trade on Friday closing the week above 1.33 having touched 2 week highs. Sterling rallied following reports Prime Minister May had secured cabinet approval and sign off on a plan to leave the EU. May confirmed “the cabinet has agreed a collective position for the future of our negotiations” bolstering demand for the beleaguered unit and fostering hope the UK can extricate itself from the European Bloc while maintaining stability across the three key pillars of the economy; production, services and distribution.

Brexit continues to dominate wider expectations as the 2 year deadline is fast approaching. So far the inability to form a firm exit strategy has weighed heavy on the Pound with markets still largely unsighted when it comes to scoping a final exit plan, that is what does a post EU environment look like. Until a firm plan is agreed then upside momentum will likely be capped.




Attentions now turn to Tuesdays GBP print, manufacturing production and Goods trade balance for direction through the week ahead. Strong prints will help firm in expectations for an August BoE rate hike lending short term support and an extension beyond resistance at 1.3310.


The US Dollar underperformed against G10 currencies to end the week lower following a disappointing unemployment rate release of 4% in the United States, higher than 3.8% in June.
Results were mixed though as 213,000 jobs were created, well above expectations with average hourly earnings declining to 2.7% year over year.

The US Dollar index was down 0.5% for the day and closed below the 94.00 handle for the first time in a month with the CME Fedwatch tool showing a 79.5% chance of the next Federal Reserve interest hike in September.



With a continued focus on the current trade war between the United States and China, we saw China hit back with its own new 25% tariff on Soybean imports, being the top agriculture export ($23bn) for the United States and China its biggest market. This comes as a rebuff to the recent 25% Tariff implementation by Trump on $34bn worth of Chinese imports containing “industrially significant technology”

With the Yield curve flattening between short and long term, further focus on the US Dollar will continue into this week with consumer inflation to be a key focus on the agenda and is due to be released on Thursday.


The Euro rose almost 0.50% versus the USD on Friday session, reaching a three-week high at 1.1746 on Friday’s weaker than expected US employment and wages data. The USD Index on the other hand closed the week more than 0.70% lower versus a basket of currencies.

The next resistance level to watch for the EURUSD is 1.1784, on Friday the pair reached 1.1767 but it seemed to run out of momentum. It’s still to be seen if we can break above the 1.18 level we’ve been trading since mid-May, but on the other hand, that range has allowed the market to find some support around 1.1550.


This week will bring Industrial Production and CPI numbers plus Germany ZEW survey.


The USDCAD lost almost 0.40%, with the loonie supported by broad USD weakness and higher WTI oil prices. Data coming from Canada was mixed, payrolls beat estimates, but mainly driven by part-time workers, while hourly earnings rose less than expected (+3.5% vs. 3.7% expected) and the Unemployment rate increased to 6% (versus 5.8% expected).

Also, Canada’s trade deficit increased more than expected in May, showing the impact the tariffs game might be having in trade. Still, probabilities for a rate hike from the Bank of Canada this week spiked again, reaching 86%, the highest level since February. On a light week of data for Canada, we’ll only get a sneak peak at the housing market before the rate decision on the 11th.

Expected Ranges

  • NZD/AUD: 0.9165 - 0.9260 ▼
  • GBP/NZD: 1.9360 - 1.9580 ▼
  • NZD/USD: 0.6800 - 0.6900 ▲
  • NZD/EUR: 0.5780 - 0.5850 ▼
  • NZD/CAD: 0.8920 - 0.9000 ▲