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Kiwi struggles in face of broader risk sell off

By OFX

The New Zealand dollar was slightly weaker this morning when valued against the US Dollar as trade tensions between the United States and China soared again overnight. The Dow Jones industrial average finished the session down as much as 446 points. The kiwi fell to an overnight low of 0.6883.

Looking ahead today and the macroeconomic calendar empty with no relevant data releases. All the focus again today will be on any more news on the trade front as well as this week's cash rate decision from New Zealand's central bank.

From a technical perspective, the NZD/USD pair is currently trading at 0.6893. We continue to expect support to hold on moves approaching 0.6870 while now any upward push will likely meet resistance around 0.6940.

The Australian dollar continued to struggle through trade on Monday as a lack of any meaningful data for release to start of the week hindered any chance of movements higher. The commodity driven unit opened yesterday at 0.7440 before moving down to 0.7425 on lower liquidity in early morning trade. Overnight lows touched 0.7397 as the Aussie dollar was dragged down once again by ongoing trade tensions and a drop-in equity prices, most notably the Nasdaq falling more than 180 points and finishing 2.45% lower for the day.

Oil fared no better falling 2% as OPEC approved to increase oil production from 700,000 barrels to a million barrels a day from July 1. Brent crude fell below $74 a barrel pulling the Australian dollar with it. Despite the Australian dollar stabilising above the US 74 cent handle, it was one of the worst performing currencies of the day and finished 0.4% lower. The AUD/USD opens this morning at 0.7405 and with a lack of any domestic data this week we expect trade tensions to be the major factor in further direction this week.

The Great British Pound added some 20 pips against the Greenback as trade tensions took the wind out of the USD. Opening this morning at 1.3280 against the United States Dollar, the Sterling is trading in a tight range ahead of the EU summit and the Bank of England’s Governor Carney’s speech.

Market sentiment was again dominated by headlines from across the Atlantic with simmering trade tensions taking the spot light. The rhetoric was certainly turned up with President Xi reportedly saying China will “punch back” after President Trump tweeted that he intended to reciprocate on any trade barriers that the country currently faced. There was also a report that suggested there were imminent US curbs on Chinese investment which didn’t help US Secretary Mnuchin’s downplay of events. Ultimately, the Pound tracked the Euro and appreciated against the Greenback as sentiment turned against the heavily favoured Dollar. The overall global climate is decidedly risk-averse with Traders awaiting more news for direction.

The Sterling enjoys another quiet domestic calendar today with direction to be dictated again by the headlines. Looking further into the week, the Pound does have Governor Carney’s speech on Wednesday as well as the EU summit on the 28th and 29th to digest.

The US Dollar fell against both the Yen and Euro on Monday as global equities stumbled, weighed down by increasing trade tensions that are now spreading beyond China to other key strategic partners. Trump announced Friday a 20% tariff would be imposed on cars imported from the EU and doubled down on Monday implementing plans with the US Treasury Department to block firms with a 25% foreign investment from buying U.S companies. The announcement is a bid to protect US technology and while it “will apply to all countries” at this point appears to target specifically Chinese investment. The draft legislation has only intensified hostilities between the world’s two largest economies and further dampened investors’ appetite for risk.

The Euro moved through 1.17 to touch 1.1715 and the Yen opens below 110 buying 109.72, while the risk off environment saw emerging market currencies suffer their worst weekly open in almost 2 years. Trade tensions and the increasing cost of US debt as monetary policy continues to tighten have reduced the attractiveness of emerging market currencies with the MSCI index down half a percent through early trade. Attentions now turn to US consumer confidence as a key marker guiding broader economic health while trade and risk appetite remain the primary drivers governing broader direction through trade on Tuesday.

The Euro traded higher for a third day in a row versus the US dollar, closing just above 1.17, 0.45% up. It seems the common currency took advantage of a dollar slip versus basically all majors, except for commodity currencies like CAD and AUD, as China and Europe warned markets of a potential recession if trade tensions continue to escalate.

On this safe-haven context, US Treasuries were well demanded, putting downward pressure on US yields, while short term yields in Germany further supported Euro strength. European yields apparently advanced on some comments by an ECB member around next steps for rate moves on autumn 2019. From a technical perspective, the EURUSD moved above its 21-day moving average (around 1.1675) which should act as first short-term support. On the upside, if the currency manages to stay above 1.17, we’ll have to see if the pair is able to break resistance at 1.1713 (June 6 low).

The CAD was not able to capitalise on the broad USD weakness as trade tensions escalate and risk-off sentiment dominates markets. The loonie lost around 0.20% versus the greenback as USDCAD increased around 0.20% to finish Monday’s US session at 1.3297, the same level where it opened in the Asian session.

Also, the CAD didn’t get any help from oil prices, which were not able to continue the bullish path started on Friday, as OPEC members made clearer that the 1MM barrel production increase was coming in full, despite not all members having same spare capacity and rules within OPEC members stating that the share of market between members should not be impacted.

From a technical perspective, next levels to watch for the USDCAD are 1.3382 (June 22 high) and 1.3262 (June 22 low).