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Kiwi ends week as top performer driving back through 0.68

By OFX

Buoyed by broad based USD weakness the New Zealand dollar was the day’s top performer Friday, jumping back through 0.68 U.S Cents. The Greenback dropped against major counterparts after President Trump doubled down on his derision of the Federal Reserve and their current dogma of tightening monetary policy. The President took to Twitter to dispel his displeasure at China and the EU for deliberately manipulating currencies and interest rates while the Fed continues to hike base line interest rates and place unfair upward pressure on the USD.

Rallying to touch intraday highs at 0.6810 the Kiwi found renewed support in stronger commodity prices however looks stretched approaching resistance at 0.6850. With speculative shorts still at records highs the NZD remains vulnerable to a correction and move back below 0.67 as attentions turn to Wednesday’s Trade Balance print as the only big ticket item on to docket moving into the week ahead.

On Friday, the Australian Dollar suffered a heavy sell-off during the Asian session sparked by the People Bank of China’s decision to devalue the Yuan by the most since 2016. The PBOC raised the yuan reference rate by 605 pips to 6.7671 - the biggest single-day jump in over two years, the AUD/USD lost 30 pips straight off the bat falling from 0.7350 down to 0.7318. The timing of the massive CNY devaluation indicates the world’s two biggest economies are likely moving towards a full-fledged currency war. Consequently, the AUD and Asian currencies have come under pressure.

The local unit recovered offshore as President Trump blamed China for manipulating their currency and again criticising the Fed for raising rates. Treasury Secretary Steve Mnuchin tried to walk back Trump's criticism of Fed rate hikes and comments on currency manipulation, saying the president respects central bank independence and is not trying to interfere in FX markets. The AUD/USD gathered momentum and moved back towards the 74c handles closing Fridays session at 0.7403.

Look ahead, the Australian economic calendar is light until Wednesday where we see Q2 CPI.

Support level is at : 0.7370 and 0.7330 with resistance levels up at 0.7445 followed by 0.7490.

The Great British Pound is stronger this morning when valued against its US counterpart reaching a Friday session high of 1.3133. Despite the recovery on Friday the Pound Sterling remains among the weakest currencies as Brexit politics continues to dominate headlines in the UK.

Looking ahead this week on the data front it begins today with a speech from Deputy Governor of the Bank of England Ben Broadbent to the Society of Professional Economists in London. The market will be listening out for any comments in relation to Broadbent's stance on hiking rates in August. Mortgage Approvals are due for release on Wednesday with forecasts to show a rise of 39k in June from 39.4k in the previous month of May. Rounding out the week on Friday sees the release of Nationwide Housing Prices in July, which are expected to show a 0.5% rise from June and a 2.0% rise since July 2017.

From a technical perspective, the GBP/USD pair is currently trading at 1. 1.3138. We continue to expect support to hold on moves approaching 1.3100 while now any upward push will likely meet resistance around 1.3155.

President Donald Trump was again the catalyst for volatility in the market, single-handedly forcing the US Dollar Index (DXY) lower. His comments and tweets were wide and varied in their targets, ranging from foreign rivals, allies and even domestic institutions. Ultimately the DXY Dollar Index shed 0.7% to open this morning at 94.48, extending its’ losses to 1.25% lower than the year to date high of 95.65.

The barrage began initially with President Trump again accusing China and the EU of manipulating their currency and interest rates lower, further aggravating tenuous global relations. The Tweet continued to also include the independent Federal Reserve, with Trump highlighting their role in the stronger Greenback and noting “…the U.S. is raising rates while the dollars gets stronger and stronger with each passing day - taking away our big competitive edge.” The market took the news poorly for the USD, and immediately began to fall against its counterparts. Punters can clearly see that Trump prefers a lower US Dollar but the Federal Reserve is an independent body with their own mandate and is unlikely to be swayed from their tightening plans. Nevertheless, the market entered another period of volatility. Closing out a busy Friday for the President was his comments to CNBC outlining his willingness to “go to 500”, in reference to the on-going trade war with China.

Moving forward, the Greenback turns its attentions to existing home sales in the US with a close eye on any further news from the President.

The Euro spiked 0.70% on Friday to 1.1726 after being as high as 1.1739 due to a broad USD correction following US President remarks on China and EU being currency manipulators. Trump then fired towards the FED and their potential 2 further rate hikes this year.

The Euro is opening the week on positive territory, and another close above the 55-day moving average might suggest further gains towards next resistance at 1.1745.

This week will bring the ECB decision on Thursday and German IFO on Wednesday.

Great close to the week for the loonie, trading back below 1.3150, more than 1% stronger versus the greenback to USDCAD 1.3130.

It wasn’t only the broad USD weakness following Trump’s comments that helped the CAD but also the positive performance of commodities and Canadian yields. Retail sales came stronger for May at 2% (versus 1% expected) while CPI for June came at 2.5% (versus 2.3% expected), both supportive of higher interest rates and thus a stronger CAD.

This week will bring wholesale trade sales, possibly a good indicator of how the trade war drama is affecting the sector. From a technical perspective, we’ll have to see if the loonie is able to break below 1.31 or if we will again start trading within the 1.31/1.32 range in the short-term.