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Strong Trade Balance Figures as Kiwi steadies

By OFX

The New Zealand dollar opened yesterday at 0.6925 ahead of NZ trade balance figures in the early morning. A thriving Trade balance surplus of NZ $263M for the month of April was boosted by an increase in Kiwifruit exports by 82% and solid numbers across a majority of sectors. Despite seeing an intraday high of 0.6936 it was a fairly mundane day for currency markets as we saw limited movements in overnight markets and lows of 0.6907.

With early morning rumbles of the cancellation of the eagerly awaited summit between US and North Korea, Geopolitical risk comes to the forefront of investors’ minds and the US was sold off in late North American trade. With little on the domestic docket today, the Kiwi could close above US 69 cents to end the week as we open this morning at 0.6935.

The Australian Dollar crawled higher through trade on Thursday recouping losses suffered in the wake of Wednesday’s softer than anticipated construction output report. The AUD held firm in the face of a risk driven sell off prompted by the cancellation of the June 12 Trump-Kim summit and refused to follow equities lower at the beginning of New York trade. The Aussie edged toward intraday highs at 0.7582 but failed to break higher despite a correction in U.S treasury yields.

Having touched 2 years highs 10 year and 2 year US treasury notes have tempered somewhat throughout the last few days pulling back below the 3% and 2.55% handles respectively. The correction in yields when coupled with improvements across base metal prices have propped up the Australian dollar and ensured short term support holds on moves approaching 0.7530 and 0.7450.

With the domestic docket proffering little of note attentions now turn to US consumer sentiment and inflation expectations and commentary from Fed Chair Jerome Powell for direction into the weekly close. Softness and a bearish undertone may force a correction in Fed futures and acts as a catalyst to drive the AUD through resistance but for now top end ranges at 0.7590/0.76 appear well constrained.

Overnight the Great British Pound rallied against the Greenback on the back of better-than-expected UK April Retail Sales, which surprised with a 1.6% monthly rise after falling by 1.1% in March and crushing the estimate of 0.8%.

The Sterling toughed a 24-hour high of 1.3421 before later stabilising below the 1.3400 figure. Looking ahead today we will see the release of the second estimate of Q1 GDP, with market expectations the short-term picture remains unchanged at 0.1%.

From a technical perspective, the GBP/USD pair is currently trading at 1.3383. We continue to expect support to hold on moves approaching 1.3350 while now any upward push will likely meet resistance around 1.3430.

The US Dollar index was down 0.20% at 93.72 on Thursday after U.S president Trump called off the historic June 12 summit in Singapore with North Korean leader Kim Jong Un, the meeting would have been its first face-to-face between the two. In Trumps letter addressed to “His Excellency” he wrote “Sadly, based on the tremendous anger and open hostility displayed in your most recent statement, I feel it is inappropriate, at this time, to have this long-planned meeting”. Adding “Your talk of nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used”.

US stocks and equities also fell during the New York session on the back of this with most losses witnessed in the Oil & Gas, Financials and Healthcare sectors. Biggest losers included Exxon Mobil Corp down 2.29%, JP Morgan Chase & Co also down 1.12%. Equites managed to rebound somewhat from the lows later in the day.

Meanwhile in commodities, Gold Futures were up with the yellow metal jumping above $1,300 per ounce as the US Dollar faded, the Fed meeting minutes that appear to be hawkish on interest rates provided gold some support. Crude oil sharply lower as reports of OPEC and its allies were considering scaling back production cuts to counter a possible shortage in global supplies. The pending U.S. sanctions on Iran is another risk to global oil supplies that has added $5 to $7 barrels to the price of oil.

The Euro gained 0.2% versus the USD to close around 1.1722 on yesterday’s session, managing to sit within a relatively tight range between 1.1690 and 1.1750. This was just the second daily gain in the last two weeks for the EURUSD and the move was probably more related to broader USD weakness than any positive headlines from the Eurozone. G10 currencies recovered a bit versus the USD on yesterday’s session after trade concerns, again, and Trump cancelling the summit with North Korea dominated headlines, providing support to haven currencies like JPY and CHF.

US Yields have also retreated a bit from last week peaks, providing some respite to other G10 currencies but the uncertainty surrounding the new Italian government remains and it seems the market is set up for some short-term volatility.

The loonie was the worst performing currency in the G10 Group, weakening around 0.4% versus the USD, despite broad USD weakness. USDCAD traded within 1.2829 and 1.2920, it spiked above 1.29 following WTI crude oil weakness after Russia mentioned they will discuss with OPEC if it will be appropriate to reduce output cuts given recent market developments. WTI crude oil fell 1.6% weighting on the CAD.

The CAD recovery from the 1.2920 highs came thanks to what seemed as some flexibility from the Mexican Government regarding NAFTA negotiations, providing some support to the loonie which recovered some ground and traded back below 1.29 to close at 1.2880.