Kiwi falters as trade concerns weigh on commodity linked currencies
Monday 10 September, 2018
Daily Currency UpdateThe trade linked Kiwi was sold off on Friday to finish the US session as the second worst G10 performer. Stronger than expected US wage growth in tandem with the news that President Trump was threatening to impose tariffs on all Chinese imports forced the NZD and it’s AUD counterpart lower. The NZD/USD fell from 0.6585 to 0.6528 – representing the lowest level since February 2016. Interestingly the NZD fared better than the AUD with the AUD/NZD cross losing half a cent, settling at levels near 1.0870.
Traders will be looking towards todays Q2 manufacturing activity which is due out at 8:45 Sydney time. An important import for GDP forecasts, the read will be closely watched as a guide to positioning ahead of the next GDP read on 20th September.
In light of recent moves, NZD/USD technical supports can now be seen at 0.6527 and 0.6500 handles on the downside with any topside moves expected to meet resistance at levels nearer to 0.6545.
Key MoversThe Australian Dollar continued its freefall lower on Friday after opening the day clawing onto the 72 US cent handle. Whipsawing for the majority of last week between 0.7160 and 0.72, the Australian dollar dropped through support levels during the domestic session on Friday as it continued to trade in a risk off environment.
Shedding nearly 1.5% for the day from its high on open, the Aussie closed to a new yearly low of US 71 cents following the news that President Donald Trump was looking to hit China with further tariffs on $US267 billion of Chinese goods on top of the already announced tariffs of US $200bn of goods.
Non-Farm Employment Change figures were positive for the United States on Friday evening, only supporting further interest rates hikes by the Federal Reserve and putting potential further pressure on the local currency for the foreseeable future.
With levels now testing Feb ’16 lows, it is possible the US 70 cent mark is now firmly on the horizon for investors as we head into the new week.
Direction for the Australian dollar will be determined by the release of Chinese inflation figures this morning as the AUD/USD opens at 0.7110.
The Great British Pound extended gains on Friday against the Greenback reaching a high of 1.3027 after European Union negotiator Michel Barnier said the EU was open to discussing other “backstops” on the Brexit issue. Unfortunately those gains were short-lived after Greenback rallied on the back of strong U.S. jobs data. U.S. job growth accelerated in August and wages notched their biggest annual increase in more than nine years.
Looking ahead today and it all starts with the release of Gross Domestic Product (GDP) data which could highlight a few concerns. Last week the IHS/Markit Institute indicated that the British manufacturing industry had slowed down to its lowest expansion rate since July 2016 – July 2016 was just after the Brexit referendum. On Tuesday we will see UK Jobless Rate which is expected to remain at 4.00%.
From a technical perspective, the USD/GBP pair is currently trading at 1.2917. We continue to expect support to hold on moves approaching 1.2890 while now any upward push will likely meet resistance around 1.2950.
The US Dollar Index (DXY) appreciated 0.33% to start the new working week, opening this morning at 95.34. The catalyst for the move upwards was stronger than expected US wage growth as well as fresh new threats from President Trump on Chinese imports. Market sentiment decidedly shifted towards safe-haven currencies which saw the Greenback strengthen further than it already has this year.
The main talking point domestically was the surprise reading from the US non-farm payrolls report which noted an increase of 2.9% for average hourly earnings. US wage growth across numerous readings has gradually drifted upwards, supporting the Fed’s assertion that the tight labour market would lead to higher wages and price inflation. The implications were not lost on the market which saw US treasury yields move sharply higher as well as boosting expectations of the Fed tightening monetary policy further. The Dollar also benefitted from the sentiment, rising higher on the news against most of its counterparts.
Demand for the Greenback was also boosted by new threats from the President despite not announcing the $200bn tariffs on Chinese imports. President Trump did say that it could happen “very soon” but so far, the tariffs have not yet been implemented. It was another ratchet up of the rhetoric that saw the USD appreciate further with his statement suggesting he was considering putting higher tariffs on all Chinese goods, leading to a negative sentiment on market movements. The news hit riskier assets the most and saw steep depreciations for a number of China aligned currencies.
To start the new week the Greenback looks to the headlines for direction with a quiet economic calendar to contend with.
The Euro Dollar moved within a 1.11% range last week from lows of 1.1530 on Wednesday and a high of 1.1659 on Thursday against the Greenback. The pair moved of its perch of 1.1649 on Friday and relinquished all gains made earlier in session after strong US employment data. The US Nonfarm Payroll report surprised markets adding 201,000 new jobs in August, beating expectations of 191,000. Also average hourly earnings rose 0.4% month-on-month and by 2.9% year-on-year which was the highest wage growth in almost a decade.
Data locally, German industrial production was weaker than expected, falling by 1.1% in July, after declining 0.7% in June. The annual pace of growth in industrial production eased to an increase of 1.1% in July, down from a rise of 2.7% in June. Eurozone Q2 final GDP came in unchanged as expected at 0.4% but the year-on-year numbers were revised to 2.1% from 2.2%
Looking ahead the macroeconomic calendar is full and kicks off with the Eurozone’s Sentix Investor Confidence. This survey of 2,800 analysts and investors surprised to the upside in the past two months, reaching 14.7 points in August. A similar figure is likely for September.
On the technical front, we see support levels at 1.1530 followed by 1.1500. On the upside, first line of resistance sits at 1.1590 and then 1.1625
The Canadian Dollar fell throughout trade on Friday touching one-week lows at 0.7569 after employment data fell short of broader expectations. Surprisingly the economy lost in excess of 50,000 jobs throughout August, the largest monthly decline since January and well outside analyst expectations for labour market expansion, while an uptick in Full time employment helped pacify investors and ensures another rate hike is still on the table.
Having fallen almost one percent through the week the Canadian dollar remains vulnerable to trade talk and risk appetite trends. Verification President Trump and the US will look to impose a further $267 billion tariffs on Chinese Imports only escalates recent uncertainty following the break down in trade talks at the end of last week. There is an increasing fear Trump and the US will look to implement Tariffs on Canadian auto-makers, a move that could have significant consequences for the broader Canadian economy.
With little headline data on the domestic docket throughout the week ahead direction will continue to derived from ongoing trade developments.
- NZD/AUD: 0.9110 - 0.9280 ▼
- GBP/NZD: 1.9450 - 1.9850 ▲
- NZD/USD: 0.6480 - 0.6630 ▼
- NZD/EUR: 0.5610 - 0.5710 ▼
- NZD/CAD: 0.8550 - 0.8720 ▼