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New Zealand dollar falls against the US ahead of Tuesday's Inflation Report

By OFX

The New Zealand dollar closed last week slightly weaker when valued against the US Dollar. The kiwi dollar traded at 0.6775 at the close on Friday, down from 0.68 cents a week ago. The kiwi continues to struggle on the back of poor domestic data and headlines about a worsening trade war between the US and China.

On Friday we saw the release of Business NZ Manufacturing Index (PMI) for the month of June which dropped 1.6 points to 52.8 (a PMI reading above 50.0 indicates that manufacturing is generally expanding). Looking ahead this week and the macroeconomic calendar is fairly light with the only major release Tuesday’s second quarter Consumer Price Index (CPI). With a quarterly rate of 0.5 per cent forecast, annual increase of 1.6 per cent, should result in keeping the Reserve bank of New Zealand cautious and monetary policy in a neutral stance.

From a technical perspective, the NZD/USD pair is currently trading at 0.6763. We continue to expect support to hold on moves approaching 0.6736 while now any upward push will likely meet resistance around 0.6788.

The Australian Dollar remains relatively unchanged to start the week, opening this morning at 0.7413. The Aussie closed out its fourth consecutive week hovering around the 0.74 mark, unable to progress amid the broader narrative of trade tensions that are dominating the headlines.

The Aussie oscillated for most of Friday, ranging from between 0.7364 and 0.7482 as trade concerns weighed on the Aussie. Again, the impetus for direction was found in the headlines with President Trump ramping up the tariffs to a proposed $200b worth of goods. China didn’t immediately retaliate, as widely expected, which provided some much-needed relief for the Australian Dollar. The relief coalesced into a small rise for commodity currencies, including the Aussie as risk appetites returned to the market. Nevertheless, markets trade within a tight range as trade war headlines dominate attentions for the Aussie.

Moving forward, Monday remains relatively quiet on the Domestic Calendar as direction again turns offshore. Australia’s most important trading partner, China, offers multiple relevant figures including Q2 GDP, Industrial Production and Retail Sales.

The Great British Pound started the week with an upswing, reaching a peak of 1.3365 however, it dropped and bounced only at the round number of 1.3100 against the Greenback as growing tensions surrounding UK Prime Minister May and US President Trump dragged the pair lower. Trump had disapproved of May's Brexit policy and said it would threaten a trade deal between the US and the UK, weighing on the Pound. He later went on to publicly apologise for his reported attack on UK PM May’s Brexit strategy and apparent support for Boris Johnson saying a free trade deal was “absolutely possible”, praising Theresa May as a “tough negotiator”.

On Sunday, during a live interview with the BBC, PM May revealed Trumps big advice regarding Brexit, he told her that she should sue the EU over Brexit terms, and should not "go into negotiations", effectively pushing for an extreme, hard-Brexit scenario that would prove economically devastating for the UK and its businesses all of which the PM found quite amusing. This Monday, the House of Commons will review the government's trade bill, and May hopes there won't be amendments to it. A clean vote that supports her strategy will likely help the Pound advance.

Looking ahead we see the release of Rightmove’s House Price Index. The earliest report on UK house prices showed a rise of 0.4% in June, slower than in May. We may see another month of modest growth now.

On the technical front, immediate support at 1.3180 following by 1.3155, on the up side, resistance at 1.3240 and 1.3285.

The US dollar edged lower into the weekly close, fading against other majors as stocks and equities rallied prompting short run profit taking on improved risk appetite. Falling against the Yen and Euro losses were compounded following softer than anticipated consumer sentiment data. Consumer confidence fell to a six-month low in July while inflation expectations also moderated lower dampening demand for the worlds base currency.

Having touched two-week highs earlier in the session at 95.241 the dollars index corrected as risk appetite crept back, however losses were tempered somewhat as the pall of broader trade tensions hangs over investors. China recorded its biggest trade surplus with the US in June, a statistic that is likely to only further inflame trade hostilities and push President Trump to extend the Tariff war in a bid to force China to the negotiating table. With the Fed still on track to raise rate at least once more this year it is hard to move away from the dollar at present.

Attentions now turn to retail sales data Monday for short term macroeconomic direction while Trade dominates wider direction and remains front and centre in influencing broader demand.

The Euro closed the week on a relatively positive note, improving around 0.10% to 1.1685 after being down more than 0.50% versus the greenback.

The dollar gave up its gains on Friday in line with lower US yields following lower than expected import prices data and University of Michigan Sentiment. The EURUSD continues to trade within the 1.16 to 1.17 range, with both levels apparently acting as strong short-term support and resistance respectively.

From a data perspective, this week will bring some insights on Inflation with the June prints from the Eurozone countries.

The loonie was little changed on Friday, closing flat versus the USD at 1.3160. The CAD was able to recover from the 1.32 highs as the greenback lost steam following weaker than expected US economic data.

The loonie was supported by a spike in oil prices of more than 2%, although WTI prices corrected towards the end of the session after rumours about Trump considering tapping crude reserves to damp gasoline prices.

From a technical perspective, we continue to trade within the recent 1.31/1.32 range and it seems we’ll need further news or data releases to move away from it. June inflation and May retail sales will be released this week from Canada.