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Kiwi buoyed as risk appetite improves leading into US holiday

By OFX

The New Zealand dollar clambered higher through trade on Tuesday bouncing off 2 year lows below 0.66 to edge back through 0.6750 as an improved appetite for risk leant support to the beleaguered unit. Market attentions drifted away from trade hostilities as investors looked to square positions and take profit on recent USD gains ahead of today’s Independence Day celebrations. Adding to market confidence, assurances from the Peoples Bank of China that it would intervene to keep the Yuan at reasonable and stable levels helped fuel a shallow relief rally.

The upward momentum stalled on moves through 0.6750 with the NZD struggling to extend upside gains beyond 0.6760. With trade thinning leading into the US holiday and investors conscious of the impact the possible introduction of $34 billion dollars in Tariffs will have on ongoing trade tensions meant protracted moves were capped as analyst chose to moderate positions for now.

With little of note on the domestic docket today and through the back of the week attentions turn to US Labour market data and the FOMC meeting minutes for broader macroeconomic direction with trade dominating risk demand and broader directional flows.

The Australian Dollar remains relatively rangebound to start the first week of the new financial year, oscillating between 0.7314 and 0.7406 in overnight trading. The Aussie tested the key resistance level of 0.74 for much of the session but ultimately failed to breach the important line for a meaningful amount of time. Nevertheless, the Aussie changes hands this morning at 0.7385, a marked improvement on yesterdays open.

The Aussie found relief from a variety of sources that led to a nice little recovery from yearly lows against the Greenback. Initially, the catalyst was the RBA which released a notably less dovish statement, helping traders with the broader cash rate narrative. Further throughout the day, risk aversion eased across markets as trade-war concerns calmed slightly, leading to a softening of the Greenback across the board.

Attentions now turn closer to home for Australian investors with Australian month on month Retail Sales due for release as well as Trade Balance data. Conversely, the Australian Dollar’s counterpart enjoys its fourth of July holiday, giving some much-needed respite to global markets.

The Great British Pound was fairly muted during the Asian session falling to an initial low of 1.3115 as overall greenback strength continued to be a major theme in currency markets. Resistance lines through 1.3140 was quickly broken at the beginning of the local session, rallying to a high of 1.3205 overnight as a boost in UK construction output fueled the rally. The construction sector saw an expansion of construction activity for the month in June and reading of 53.1 which is a seven-month high.

With encouraging domestic releases, the Sterling is hoping to continue its movements higher as investors look towards the release of Services PMI reading for the month in what is a packed week of releases. The British Pound opens this morning at 1.3190 against the US Dollar.

At the time of writing the U.S dollar index which measures the greenbacks strength against a trade weighted basket of currencies was down 0.29% at 94.60 on the day ahead of the July 4th holiday. Among the currencies the EUR/USD pair attracted most interest. The pair fully recovered from Mondays losses after leading coalition parties in Germany managed to break the migration deadlock, calming concerns over Merkel’s political career and worries about the lifetime of the current coalition government. EUR/USD currently changing hands at 1.1660.

On the data front, we saw an unexpected rise in US Factory Orders for the month of May, Order rose 0.4% amid a strong demand for machinery. Data for April was revised higher, showing orders fell 0.4% rather than the previously reported steeper decline of 0.8%.

Meanwhile, the China and US trade issue seems to still be unresolved, the Trump administration's tariff on a range of Chinese goods worth about $34 billion is expected to come into effect on Friday. China's 25% tariff will also take effect Friday on $34 billion of U.S. goods. Looking ahead the US observe July 4th Independence day and therefore markets will be closed.

With not many Headlines coming from the Euro region and with mixed data (higher than expected PPI but lower than expected retail sales) the Euro was able to recover some ground against the USD, with EURUSD closing up 0.20% around 1.1663.

The USD on the other hand was weighted down, most probably influenced by a recovery in Emerging market currencies after the PBOC intervened verbally in the CNY market to avoid further advance on the $CNY cross.

We are still trading on the 1.16/1.17 range, but we will be getting PMI Indexes (purchasing manager Index on manufacturing and construction) for the Eurozone region later Today.

USDCAD was down 0.40% to around 1.3138 following a better than expected Canada manufacturing PMI index for June. The probabilities for a Bank of Canada rate hike on July 11th continue to edge higher and are now sitting at 83%, supporting the loonie. The loonie couldn’t break below the 1.3125 support level which will continue to act as first short-term support for the USDCAD. Resistance should also continue to sit around 1.3225 (Monday’s high).

From a data point perspective, we will have to wait until Friday to get unemployment and trade numbers but keep an eye on Oil prices and trade war headlines coming from Washington.