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NZD trades sideways ahead of key risk events

By OFX

Yesterday’s public holiday in Australia engendered a quiet day for the NZD with the pair fluctuating between 0.7015 and 0.7055 to start the week. As of Tuesday morning, the NZD/USD is currently changing hands at 0.7020; slightly down from last weeks levels which were closer to 0.7030.

The NZD is down against the AUD with the NZD/AUD cross down to 0.9230 this morning. From a data perspective, manufacturing sales data was released on Monday which came in slightly above expectation however analysts are still predicting next weeks Q1 GDP read to be soft.

On the technical front, key support can be located at 0.6880 with any upside moves expected to meet resistance at levels nearer to 0.7060.

Despite the discord emanating from the G7 summit in Quebec, currency market reaction has not been particularly prevalent with markets seemingly in a ‘wait and see’ mode. In what is shaping up to be a busy week for currency markets, the Australian Dollar traded in a tight band overnight, ranging sideways between 0.7600 and 0.7622 before opening this morning at the 0.7610 level.

Although the AUD/USD has come off last weeks highs of 0.7678, this weeks busy domestic and global docket could prompt renewed volatility .Traders will be looking towards todays NAB business survey as well as the housing finance report for April as markers driving direction through the start of the week. With the RBA continually pointing to strong business sentiment as justification for it’s elevated economic growth outlook, another strong read could provide further support for the local currency. We also have US CPI data out of the US with consensus amongst economists who are predicting an outcome of 0.2% m/m with any deviation from this number expected to drive price direction.

US president Donald trump is set to meet with North Korean Leader Kim Jong-un today in Singapore and is shaping up to be a key risk event for the week. With denuclearization of the Korean peninsula a key objective for Trump, any fallout from these negotiations will likely weigh on the AUD with traders looking to shed risk. In saying that, technical resistance is seen at the 0.7670 level, followed by 0.7715 with downside supports located at 0.7575 and 0.7450 respectively.

It is expected to be a busy week for the Pound this week with a raft of releases and risk events due out of the UK. The GBP didn’t get off to the best of starts on Monday with UK industrial production and trade data both coming in under market expectations with manufacturing output dropping the most in over 5 years and the trade deficit widening. As a result, the GBP did come under selling pressure falling 70 points against the USD post release before eventually consolidating at levels near to 1.3352.

Later in the week we have more domestic macroeconomic data out of the UK in the form of UK CPI and Wage data. These key releases will be watched closely by traders who are looking for indicators that may shed lights on the Bank of England’s likely monetary policy path over the next year. Another key risk event for the GBP is tonight’s EU withdrawal bill which is due for a return to the house of commons tonight. In what is expected to be a close vote, the prime minister Theresa may is largely expected to get the bill through which could significantly shape how Brexit proceeds.

The US dollar index was largely unchanged on the day as markets continued to adopt a ‘wait and see’ attitude. Focus today is on president Donald Trump’s meeting with North Korean Leader Kim Jong-un, with trump looking to use the pairs first meeting to develop a plan for the denuclearisation of the Korean peninsula. US treasury yields do open higher

With an action-packed week ahead for the worlds base currency, markets will also await key US CPI data tonight before focus will shift to FED and ECB meetings due later in the week. May CPI is will provide guidance on both the headline and core measures with market consensus concentrated on an uptick of 0.2% annually across both. With such a large consensus among economists, any upside or downside surprises in the read should result in some price action.

Looking towards the FOMC meeting on Thursday, the FED is expected to increase it’s policy rate to 1.75-2% with a slightly more hawkish tone expected. In light of the strong momentum in the US economy and inflation virtually at it’s long run target, further commentary is expected regarding the next step in monetary policy and balance sheet normalisation.

EURUSD returned above 1.18 versus before pairing gains and closing around 1.1784, still 0.1% higher. The Euro reached its session high, at 1.1820, after the new Italian Finance Minister Giovanni Tria, assured his commitment to the Eurozone membership and signalled prudent fiscal policies, which was well received by bond markets. Eyes will be on this week’s ECB meeting on the 14th following FED meeting on the 13th, which should give markets plenty of new information on where to head from here. With easing European political tensions and better global growth data lately, risk assets should be well supported ahead of the meetings.

From a technical point of view, first resistance for the EURUSD is seen at June 7th high of 1.1840 while supported should be found at 1.1755 ahead of 21-day moving average at 1.1738.

The CAD had a bad performance against the USD yesterday, losing around 0.4%, closing just shy of 1.30 although it recovered from a loss of 0.8% earlier in the day, as the USDCAD reached 1.3030.

The loonie has been on the back foot lately after the weekend trade tensions between Trump and Trudeau, falling Canadian yields and Friday’s drop in Canadian employment. Rising oil prices, as there seems to be some disagreement on OPEC output caps, helped the CAD pare some losses against the USD but it wasn’t enough to break below 1.2950, where USD support is seen. On the upside, resistance for USCAD is sitting at 1.3050.