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Kiwi under pressure on trade jitters

Daily Currency Update

The New Zealand is slight lower against the US Dollar as jittery investors demands have increased for safe-haven buying. The New Zealand Dollar moved from highs of 0.6567 just before the European session down to a low of 0.6518 during the North American session. As the US China trade war rages on with 10% tariffs that the US imposed on $200bn in Chinese goods will increase to 25% as of Jan 1st the Kiwi has been one of the sensitive G-10 currencies.

Looking ahead we see the release of Trade Data where a deficit has been forecasted at around $5bn mark as import growth remains ahead of exports.

On the technical front support sits at 0.6500 followed by 0.6475, on the upside resistance sits at 0.6550 and 0.6565

Key Movers

The Australian Dollar saw an all too familiar story overnight after it failed in its attempts to break through resistance at 71 US cents at the local close yesterday. Opening the morning at 0.7085, upside momentum in the afternoon on improved sentiment in Asia saw a shakeout of sellers before peaking at 0.7105.

Unable to breach strong resistance lines, the Australian Dollar resumed its broader trend lower overnight following heavy losses on equity markets with investors retreating into safe haven currencies. With the ASX expected to open at least 1.5% lower the Australian dollar is likely to once again look to test key support levels at 0.7050 today.
With the Australian dollar opening this morning at 0.7060, cues will once again take its lead from equity markets and a number of data releases in the United States this evening.

Unable to keep pace with a stronger Greenback overnight the Great British Pound has fallen when valued against the worlds reserve currency. The GBP/USD suffered a downward correction from 1.2983 as the European session began and dragged further through the North American session moving to a low of 1.2867 -down by 0.90%. The main driver for the move was that investors seemed convinced that the UK PM Theresa May will not accept the proposal as she wants a UK-wide customs backstop to be legally binding and included in the divorce bills. Safe-haven buying came in play for the USD and pulled the GBP/USD to a three-week low.

In other news, British mortgage lending fell to a seven-month low in September, a month after the Bank of England raised interest rates. Approved mortgages were down to 37,352 from 42,581 in August according to figures from UK Finance. It seems that there is some apparent pressure on consumers regarding affordability and we as the uncertainty over the impact Brexit will have on the economy.

The United States Dollar appreciated across the board in overnight trading, as risk aversion continued to dominate market sentiment. The US Dollar Index (DXY) reflected the strengthening Greenback and increased by half a percent to hit 96.43.

Momentum was driven by a number of sources, chief among them was the equity market. The S&P500 is on track for its 13th negative day out of 15 and is 8% lower than its late-September high. The catalysts for the falls are numerous and varied however the general sentiment is that there will be tighter future global growth. US-China tensions and softer earnings reports aren’t helping either. The falls in equity markets spearheading a general flight to safety across financial markets with the Greenback being a prime beneficiary of the shift in asset allocations.

On the domestic front, US new home sales came in softer than expected and fell to a 2-year low. While the recent hurricanes are undoubtedly to blame for a portion of the result the 7-year high in mortgage rates may also be playing a part. US Markit PMI figures were also released overnight and surprised to the upside.

Moving into Thursday the economic calendar is a little more interesting with M/M Core Durable Goods Orders due for release and the FOMC’s Brainard set to speak.

The Euro is weaker this morning when valued against the U.S. Dollar on the back of better-than-expected US data releases. In the EU Preliminary October Markit PMI came in well below expected, leaving the EU Composite PMI at 52.7, the slowest rate of growth in two years.

Looking ahead today and the European Central Bank holds its monetary policy meeting, investors will be looking for any comments about the ongoing concerns between the European Union and Italy over Rome’s budget. The macroeconomic calendar is light with the only release Germany business confidence survey (German GfK Consumer Climate).

From a technical perspective, the EUR/USD pair is currently trading at 1.1395. We continue to expect support to hold on moves approaching 1.1375 while now any upward push will likely meet resistance around 1.1430.

Big session for the CAD overnight, hitting weekly highs against the greenback after the Bank of Canada signaled a faster pace of monetary policy tightening. The BOC raised the cash rate by 25bp to 1.75% which was of no surprise to markets who had fully priced this in. The accompanying statement triggered the rally in the Loonie, with the USD/CAD falling to 1.2969 (76.87 US Cents) representing its highest level since October 17. Greenback strength has clawed back some of the gains, with USD/CAD opening this morning at 1.3000, a 0.6% decline on the day.

Focusing on the monetary policy statement, markets interpreted this as a definitely hawkish tone with the BOC dropping it’s referenced to a “Gradual approach” to future rate hikes. They have seemingly replaced this with a ‘neutral stance’, meaning the pace of further hikes will be dependent on how the domestic economy adjusts to the higher rates. They also pointed to the positive benefits of the USMCA deal, reducing trade policy uncertainty in the near term which was having a dampening effect on business confidence. Markets are currently pricing three further hikes for next year.

On the technical front, USD/CAD resistance can now be seen at 1.3083 with any downside moves expected to meet technical support on levels approaching 1.2950 and 1.2900 respectively.

Expected Ranges

  • NZD/AUD: 0.9175 - 0.9260 ▼
  • GBP/NZD: 1.9600 - 1.9900 ▼
  • NZD/USD: 0.6500 - 0.6580 ▼
  • NZD/EUR: 0.5700 - 0.5780 ▲
  • NZD/CAD: 0.8450 - 0.8570 ▼