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Kiwi range bound as trade deficit widens

Friday 26 October, 2018

Daily Currency Update

The New Zealand Dollar remains largely range bound through trade on Thursday, bouncing between intraday lows at 0.6502 and session highs at 0.6545. Despite ongoing equity market volatility and a far from encouraging trade balance print the NZD remains stubbornly resilient. While the trade deficit continues to widen on surging imports and ongoing prices pressures on milk and milk powder (new Zealand’s Primary export) the growth outlook remains solid and investors are far from panic stations. The NZD remains well bid on moves approaching 0.65 and 0.6450 and appears to have fought off any deeper correction for the time being. That said, much like its antipodean counterpart, there remains little appetite to significantly extend upside moves with drives toward 0.6550 and 0.66 likely to meet selling pressure as investors look to take profits. While equity driven risk appetite will guide broader demand for the Kiwi, attentions now turn offshore as US GDP and Consumer sentiment data drive direction into the weekly close.

Key Movers

The Australian Dollar is higher overnight after opening the morning clinging onto support at 70.60 US cents. With the focus squared on equities this week, tech shares drove markets higher as the Nasdaq rebounded aggressively in trade overnight, pulling risk sentiment with it. Futures on the SPI200 point towards a 1% increase on open as we saw the AUD/USD peak just below the 71 US cent handle in North American trade, a level unable to be breached this week as a narrow sideways pattern emerges between 0.7050 and 0.7100. With a lack of domestic data this week, investors look towards the release of United States Advanced GDP for Q3 which looks to be the highlight of the evening. The Australian dollar opens this morning at 0.7080.
The Great British Pound throughout the Asian session on Thursday remained under pressure and stayed below the 1.3 handle vs the Greenback on the back of renewed US Dollar buying interest. The safe-haven U.S dollar has attracted nervous investors, due to increasing geopolitical tensions including U.S and China, the outcry over the killing of a Saudi journalist in Turkey and the increasing tension between Putin and the United States. Washington has said it wanted to withdraw from a key nuclear weapons control treaty with Russia since it was confident Moscow has violated it. In the early North American session news broke via Bloomberg that “Brexit talks are said to be on hold as May's team can't agree”. In a knee jerk reaction the cable was sold off further and touched an eventual low of 1.2810. Britain departs the EU at the end of March, and the uncertainty surrounding Brexit is likely to continue to weigh on the pound. Looking ahead, there are no local data releases thereofre invetors will likely look offhsore for direction with the upcoming US GDP figures due for release. The numbers are expected to be solid which could put further pressue on the Sterling.
The US dollar enjoyed mixed fortunes through trade on Friday giving up two-month highs on increasing concerns US earnings are beginning to show signs the protracted long run cycle is coming to an end. The Dollar found support early following a stronger than anticipated GDP print. An uptick in consumer spending and inventory investment offset the drop-in tariff plagued exports, ensuring the slowdown in growth was not nearly as dramatic as first anticipated. Despite the strong headline GDP print and a slow down in inflation that may give the Fed reason to pause its rate hiking cycle the Dollar fell across the board into the close. Investors were reluctant to extend the recent upside as the adverse effects of tariffs on US earning, increasing borrowing costs and political tensions are beginning to weigh on broader optimism. The Dollar index fell almost six tenths of a percent, while the Euro pushed through 1.14 and the Yen made early gains as risk appetite waned. Attentions now turn to a slew of macroeconomic indicators headlined by Tuesday’s Consumer confidence report and Fridays Non-Farm payroll print.
The Euro had what seemed to be a bumpy ride on Friday against the Greenback. Having initially opened Friday’s Asian session around the 1.1374 area, the pair moved sideways until the European session began where the pair was dragged lower following European Central Bank President Mario Draghi's failure to convince traders the ECB could pursue monetary tightening after next summer as political and economic uncertainties grow in the monetary union. Technical buyers came in to stop the price slide as the pair bounced off 1.1335 August 15 support levels. A slow grind back over 1.14 on the back of weak US Data and the Euro closed the week a shade higher at 1.1403 against the U.S Dollar. In economic news, German GfK Consumer Climate released showed that consumers in Germany remain in a spending mood in spite of a recent dampening of the country's macro-economic prospects. The consumer climate indicator forecasts the development of real private consumption in the following month with the barometer holding steady at 10.6 for November. Looking ahead, the local calendar is light until tomorrow where the Euro zone is to publish preliminary GDP data and Germany is to release data on consumer price inflation.
The USD/CAD pulled back from its highest level since September the 11th following a disappointing GDP reading out of the United States for the third quarter. Intraday highs hit 1.3160 before strength in the Loonie was seen during North American sessions and traded as low as 1.3080 at one point. WTI Crude Oil prices pulled off lows to over $67 a barrel in further support for the Commodity based currency, and is hoping the Loonie trades higher off the back of Bank of Canadas rate hike last week from 1.5% to 1.75% and the fifth hike since July 2017. From a technical perspective, the USD/CAD pair is currently trading at 1.3095. We continue to expect support to hold on moves approaching 1.3020 while now any upward push will likely meet resistance around 1.3150.

Expected Ranges

  • NZD/AUD: 0.9150 - 0.9310 ▼
  • GBP/NZD: 1.9480 - 2.0180 ▼
  • NZD/USD: 0.6435 - 0.6610 ▲
  • NZD/EUR: 0.5625 - 0.5780 ▲
  • NZD/CAD: 0.8430 - 0.8630 ▲