Kiwi buoyed by broad improvements in risk demand
Wednesday 6 June, 2018
Daily Currency UpdateWith NZD specific news relatively scant, the NZD appears to be benefitting from a combination of a weaker USD, an uptick in commodity prices and positive AUD sentiment. Through the past 24 hours the NZD has traded on a 40 pip range spending the majority of the session hovering around the 0.7030 level after touching session highs of 0.7045 in early European trading. The NZD opens this morning up 0.3% against the CAD, 0.4% against the AUD and lower against the EUR which performed strongly overnight. Looking ahead, global risk sentiment will remain key for both the NZD and the AUD with any deterioration in sentiment presenting downside risks to these risk on currencies. Today’s GDP print out of Australia could also provide some volatility for the NZD due to their positive correlation.
Key MoversTrading in a 55 pip range overnight, the Aussie dollar dropped on Tuesday but managed to hang on to most of Monday’s strong gains. Falling overnight from levels of 0.7650 to session lows of 0.7595 before consolidating around the 0.7615 handle, the currency finished the day as the biggest underperformer of it’s G10 peers. As widely expected, the RBA maintained it’s current monetary policy stance at yesterdays meeting keeping the cash rate on hold at 1.5% for the 20th consecutive meeting. Whilst highlighting that recent Australian data has been largely in line with their forecasts for growth to pick up above 3% in 2018 and 2019, they remain cautious on uncertain areas of the economy, especially consumer spending, low wage growth and inflation. With no substantive changes in tone evident in the post meeting statement, data on unemployment, wages, inflation and the housing market will remain key for the policy outlook in the near term. Traders will be looking towards todays Australian GDP release at 11:30 today. Leading indicators over the past week or two are suggestive we could be in line for a strong quarterly print which could provide further upside for the AUD. On the technical front, resistance is seen at the 0.7668 and 0.7700 handles with the currency well supported at levels closer to 0.7560.
The sterling jumped overnight on Tuesday after a very strong services PMI survey suggests Britain’s dominant service sector is growing quicker than expected after a slow start in early 2018. The read catapulted the Pound to 2 week highs of 1.3391 against the USD before tapering later in the session to 1.3339, resultant of a resurgent USD. The pound also touched 4 day highs against the EUR in what was a busy European session overnight. Although these moves have provided the pound with some respite, the outlook for the pound does still remain subdued due to the uncertain backdrop surrounding Britain’s planned exit from the European union and the bank of England’s planned monetary policy path.
The US dollar index was down 0.1% on the day yesterday, losing the most ground against outperformers the EUR and JPY. US treasury yields retreated overnight with the 10 and 2 year metrics falling to 2.80% and 2.47% respectively. In what is becoming a recurring theme, we once again had some strong data out of the worlds largest economy with service sector PMI’s and record high job openings confirming stronger growth int Q2. In trade war related news, the WSJ has reported China is offering to purchase nearly $70 billion of farm and energy products on the proviso that the Trump administration abandons it’s planned tariffs. We will have to wait to see how this will play out with Trump’s main economic advisor also indicating that the president does not plan to withdraw from NAFTA and is considering separate negotiations with Canada and Mexico.
A bit of a volatile session for the EURUSD yesterday, Italian yields moved up again with the 10-year increasing more than +25bps following Italian Prime Minister Conte first speech. Referring to fiscal policy, in relation to their will to reduce public debt he mentioned: “we want to do it by increasing our wealth, not through the austerity measures that in recent years have allowed it to grow”. The market didn’t quite like some of the comments and the EURUSD reached day lows following the speech to 1.1660 but it then managed to recover and close the day on positive territory, up 0.15% to around 1.1720 following Headlines around the willingness of the ECB to have a debate about their Quantitative Easing exit on their next meeting. Next levels to watch for the EURUSD are 1.1660, yesterday’s lows that should act as first support, while 1.1745 is the next upside resistance. Also, keep an eye on Peter Praet’s speech tomorrow as it might give some more insights about that Q&A session on the next ECB meeting (June 14th)
The loonie was weakening around 1% against its USD partner following Headlines about NAFTA negotiations indicating, the US might be moving quickly towards separate bilateral deals. USDCAD jumped to 1.3067 on the news but it managed to recover and close around 1.2970, still up around 0.20%. It might have been that the market digested the news and then interpreted the news as relatively positive for the CAD as the US might take a softer stance if dealing separately only with Canada. From a technical perspective, the next levels to watch for the USDCAD are 1.3045 on the upside and the psychological 1.29level as support.
- NZD/AUD: 0.9185 - 0.9295 ▼
- GBP/NZD: 1.8850 - 1.9080 ▼
- NZD/USD: 0.6970 - 0.7110 ▲
- NZD/EUR: 0.5960 - 0.6050 ▼
- NZD/CAD: 0.9040 - 0.9180 ▲