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Kiwi testing 2018 lows ahead of GDP release

By OFX

The New Zealand dollar has resumed its downtrend in overnight trading, failing to sustain any rallies into the upside short term resistance levels at the 69 US cent handle.

Opening the domestic trade at 0.6890 we saw small moves higher to 0.6910 in the morning following the release of a surplus in current account figures of 180m for Q1 this year.

The Kiwi dipped lower in offshore markets as the US dollar continues to gather momentum off higher interest rate yields and trade tensions and the NZD/USD cross is now testing 2018 lows seen in May 16th this year of 0.6850.

This morning we see the release of New Zealand GDP figures whereby forecasts are predicting a modest retreat from last quarters reading of 0.6% and a slowdown in the economy to 0.4-0.5%. A reading this low would show the lowest pace of annual growth in four years.

The New Zealand Dollar opens this morning at 0.6860.

A sense of calm has been restored across financial markets over the past 24 hours, a mood which has been well reflected in underlying currency moves. Whilst the Australian dollar meandered between a low of 0.7369 and a high of 0.7408 versus its US Counterpart yesterday, the status quo has been well and truly thrown on its head this week, an abrupt and abrasive sell-off which has in most been driven by Donald Trumps dialled up trade threats against China. Acknowledging that rhetoric from the RBA has also played its role, markets are still only pricing in a 50 percentage chance of a interest rate hike this year, with the struggles of the AUD more closely tied to the risk off events which have had significant consequences across the emerging market space.

In light of a stabilising backdrop this morning, the Australian dollar currently swaps hands at a rate of 0.7367. In looking ahead as to what’s likely to drive direction today, the economic docket locally is void of any market-moving potential, hence sentiment is likely to play a big role as investors eye levels closer to the 74 US Cents mark.

Trading ranges for the Great British Pound when valued against the worlds reserve currency were well contained during Wednesday’s session. As investors navigated a somewhat uninspiring window when compared to the carnage witnessed only 24 hours earlier, there was a sense that the big damage for the week had already unfolded in the aftermath of heightened trade fears from the US amid ongoing signs of political headwinds from Theresa May’s government.

Trading to a low of 1.3147 versus its US counterpart, upside momentum was limited to highs just above the 1.3200 water-mark. In what could further test the Sterling’s spine today, it is widely expected that the Bank of England will retain the existing cash-rate of 0.50 percentage when they meet this evening. With political concerns tied directly to Brexit negotiations still dominating wires, its more likely that only 2 of the 7 monetary policy committee members will vote in favour of more contractionary settings, particularly given stagnant inflation and muted growth.

Currently trading close to its overnight low at 1.3175, the Great British Pound opens marginally stronger against both the Australian dollar (1.7876) and the New Zealand dollar (1.9186).

The Greenback enjoyed a welcome lacklustre day for once this week remaining relatively rangebound against most cross rates. With a slow day in the headlines and mostly benign speeches from the central banks, the USD managed to hold its gains against most currencies and oscillate within a tight range. The Greenback did eke out a few gains against commodity currencies however and did post a marginal increase against a basket of currencies (DXY). The DXY opens this morning at a healthy 95.12.

Wednesday’s significant event was the central banking forum in Sintra overnight whereby Fed Chair Powell, ECB President Draghi, BOJ Governor Kuroda and RBA Governor Lowe all spoke on a variety of topics. While there was little insight to be had on interest rate forecasts for their respective jurisdictions, all speakers pointed to the growing trade tensions with the United States as a key threat to their respective economies. Ominously, Powell noted ‘changes in trade policy could cause us to have to question the outlook’. The market however, mostly shrugged off the warnings and were buoyed by Powell’s positive comments about the US economy.

Moving into Thursday, the United States Dollar has a quiet domestic economic calendar to digest with traders looking off-shore for direction. New Zealand releases their GDP data this morning, and the Swiss have their Monetary Policy Assessment later in the day. Closing out Thursday, the UK turn to their official bank rate policy announcement for direction.

The Euro struggled to break outside broader ranges on Wednesday bouncing between 1.1550 and 1.1600 when valued or compared against the USD dollar. Having tumbled in the wake of the ECB’s monetary policy announcement last Thursday the 19 nation combined unit has failed to gather serious upward momentum as risk aversion and a broader repositioning plague markets and investors sentiment.

The selloff of last week has somewhat moderated as investors panic surrounding burgeoning trade tensions eases marginally. Central Bank officials, despite citing trade tensions as a concern and spectra hanging over global growth do not expect it to change short term monetary policy outcomes, perhaps adding some support to the beleaguered Euro. Touching intraday lows at 1.1549 the Euro steadied and bounced back toward intraday highs at 1.16 before correcting lower to open at 1.1573.

Attentions now turn to manufacturing and services data Friday as the key macroeconomic indicators driving direction into the weekly close while trade and tariffs will continue to steer broader sentiment, influencing wider directional flows Thursday.

The Canadian dollar edged lower through trade on Wednesday making new 12 month lows and opening the door for a break below 0.75 U.S Cents. While moderating somewhat the sell off has persisted as trade tensions continue to plague broader market sentiments and risk aversion remains the primary directional driver. Concerns surrounding existing NAFTA policy and future trade relationships between the US and Canada are dampening demand for the loonie as investors look to shift net holdings and extend USD/CAD bullish bets. Having fallen more than 8% year to date and traders still holding a net short position since mid may there is scope for further USD gains and a move toward mid 2017 lows below 0.73.

Attentions now turn to crucial retail sales and inflation data Friday for macroeconomic guidance while broader sentiment is dominated by ongoing trade tiffs and the threat of an escalation into an all out trade war.