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NZD attempts to break 67 US Cents ahead of Retail Sales

By OFX

The New Zealand Dollar was supported by further weakness from the US Dollar overnight as the kiwi touched US 67 cents briefly for the first time in two weeks as both the DXY and US yields were lower overnight. The NZD/USD cross looks to have bottomed out in such period of 0.6550 and becomes a key longer-term support level. After opening at 0.6640, the NZD climbed steadily throughout the day seeing local session highs of 0.6670 with a small pullback following the latest GlobalDairyTrade auction whereby the price index fell 3.6% on its last auction. With the prior reading flat, dairy prices are now 10% lower since May.

President Donald Trump shows no sign of letting up overnight in his second round of comments against the Federal Reserve as he again criticised their raising of interest rates and was “not thrilled” with Jerome Powell’s current stance on future interest rate rises.

The Kiwi dropped to 0.6650 following the auction before continuing its march higher in the North American session to eventually settle just below resistance at the US 67 cent mark ahead of this morning’s Retail Sales reading which is expected to show a small gain of 0.4% for the 2nd quarter of 2018.

The Australian Dollar when valued against the worlds reserve opens stronger this morning, the gains were first led on Tuesday after the release of the RBA monthly Minutes where Governor Philip Lowe raised confidence amongst investors. He reiterated that the RBA will eventually raise interest rates if they were to see progress made on unemployment and inflation adding that any move will “likely be up not down”. The AUD/USD continued its bullish trend intraday and during the North American session touched a high of 0.7381 as the Greenback continued to extend its downward fall following remarks from U.S. President Trump that the Fed's path of monetary policy tightening is hindering fiscal stimulus efforts to boost the economy.

Supporting the local unit has also been optimistic comments from Chinese officials despite US President Donald Trump's view that it was unlikely for them to reach an agreement in Washington later this week. Chinese foreign ministry stated that they wanted to settle the trade dispute with the US via negotiations and added that they were hopeful that both sides could reach a good outcome.

Looking ahead we have Q2 Construction Work Done and the MI Leading Index, meanwhile in Brisbane Deputy Governor Debelle is giving a speech in Brisbane titled “Low inflation” at the Economic Society of Australia Business Luncheon. From a technical perspective, if we stay above 0.7364 resistance the next level in sight is 0.74c. Support is sitting at 0.7345 and 0.7294.

The Great British Pound enjoyed ongoing upside momentum through trade on Tuesday surging back through 1.29 to touch intraday highs at 1.2924. Sterling found support in stronger than anticipated Public Net Borrowing numbers and an ongoing short-term USD correction. Investors continued to sell off USD holdings following President Trumps comments on Monday, wherein, the commander in chief made it clear he was displeased with the Federal Reserve Presidents monetary policy program. Trump is fixated on reducing the US trade deficit and a higher Dollar supported by higher interest rates continues to pose a significant risk to export led growth.

Having touched 14-month lows last Wednesday the Pound has recovered strongly through the week thus far but broader direction remains hampered by Brexit developments, with little headline macroeconomic data on hand into the end of the month. We still expect resistance on moves approaching 1.30 while supports appear firm on moves approaching 1.26/1.27.

The Greenback fell yesterday against its major rivals on the back of a combination of broad US dollar weakness and soaring US equities. US equities hit an all-time highs for the first time since January 26 which was led by technology and utilities companies, the benchmark S&P 500 index traded up 0.6% to 2,872.93. US equities, equaling the longest-ever bull run, has been supported this year by strong earnings growth.

On the data front today and all attentions turn to today’s Federal Open Market Committee (FOMC) minutes. The US Federal Reserve will most likely reaffirm its optimistic outlook of the economy.

From a technical perspective, the EUR/USD pair extended its Trump-triggered rally to a high of 1.1600, its highest in over a week. The USD/JPY pair also traded higher reaching an overnight high of 110.54. Despite concern fears of a no-Brexit deal the Pound Sterling rallied to a high of 1.2924 against the US dollar.

The Euro continued its positive gains into the start of Wednesday, posting about a 1% gain to 1.1573 to start the day. Again, the catalyst was off-shore forces however, with little to drive the Euro domestically. It was of course the Greenback that drove the momentum shift, as it found itself losing ground across the board on the back of comments from President Trump.

Comments from President Trump were again the primary concern for markets overnight with his latest salvo at the Fed well and truly in the spotlight. His criticism of Fed Chair Powell and the Fed’s Interest Rate hikes dominated market sentiment with the USD falling across the board. While the Fed is an independent institution there are concerns that Trump could promote more dovish Governors to the four empty seats at the Fed. With the gloss on the USD slightly tarnished, risk sentiment returned to the market with flows moving to a number of risk-aligned currencies, including the Euro. Closer to home, EU Chief Brexit Negotiator, Barnier, said negotiations were entering their final stage and discussions would occur continuously from now on.

Wednesday otherwise proves to be another quiet day on the domestic economic calendar. Attentions will now turn to the FOMC meeting Minutes for direction.

The Loonie appreciated significantly against its US counterpart, opening this morning at 0.7668 (1.3041). Again, the impetus for the rally was driven by the US as President Trump criticised the Federal Reserve for its interest rate guidance.

The Canadian Dollar enjoyed a mostly quiet day on the economic calendar, with little to excite markets except for the Bank of Canada’s Wilkins speech. Wilkins outlined a growing confidence in the macroprudential measures which she suggests, has improved the quality of household debt. However, she also cautioned that higher debt levels would mean a larger impact from rate hikes, perhaps tempering her earlier comments on improved household debt. The Loonie, shifted slightly on the back of these comments although the biggest gains were to come from President Trump. The on-going criticisms of the Federal Reserve took the gloss off the Greenback and saw it plummet across the board. Risk-sentiment shifted off-shore with the Cad being a primary beneficiary.

Moving into Wednesday, the Canadian Dollar turns to its Retail Sales reading as well as postings from the FOMC in the US for direction.