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Kiwi falls off the 66c perch

By OFX

The New Zealand Dollar is weaker against the U.S. Dollar on the back of upbeat US Data, U.S. domestic retail sales rose 0.1 percent in August, and amid Trade War concerns. Locally on Friday we saw the release of Business NZ Performance of Manufacturing Index (PMI). The seasonally adjusted PMI for August was 52.0. While this was 0.8 points higher than July, it remains below the long run average expansion level of 53.4.

On the data front and the macroeconomic calendar is pretty quiet for the first half of this week. On Wednesday we will see the release of Global Dairy Trade (GDT) which is a leading indicator of the nation's trade balance. Also, on Wednesday we will see the release of Westpac Consumer Sentiment a survey of about 1,500 consumers which asks respondents to rate the relative level of past and future economic conditions. Looking further ahead in the week we will see on Thursday the release of quarterly Gross Domestic Product and Visitor Arrivals will be released on Friday.

From a technical perspective, the NZD/USD pair is currently trading at 0.6548. We continue to expect support to hold on moves approaching 0.6501 while now any upward push will likely meet resistance around 0.6642.

The Australian Dollar found its feet on Friday, forcing its way above 0.72. The Pair built on the momentum from Thursday to recover from a 30-month low but petered out towards the 0.7230 level. Sentiment ultimately shifted however after US President Trump put the brakes on market optimism, stating that he was indeed willing to put into effect another round of Tariffs despite Secretary Mnuchins’ re-opening of trade talks. Opening this morning at 0.7151, the Aussie continues to feel the effect of the US-China trade tensions.

Exacerbating the trade tensions was several media reports that Trump intended to proceed with $200bn tariffs on Chinese imports. Trump mentioned he was unconcerned with the re-opening of discussions and would indeed press ahead with the tariffs. Over the weekend, the Wall Street Journal also mentioned that Trump may lower the tariff to 10% from the originally proposed 25%, a potentially “better” outcome than expected for the Aussie.

Amidst the trade war discussions was a strengthening Greenback with mostly positive data releases for the week. Chicago Fed President Evans, noted that the US economy was “firing all cylinders” and said it would be “quite normal and consistent” should the Fed take its cash rate above neutral over the medium term. In Australia, things appeared to be quite rosy as well, with 44,000 jobs added to the economy, as reported on Thursday. The initial jump led to movement around the 0.72 level but the good news story was gradually unwound as Chinese data came in a mixed bag. Chinese retail sales remain strong but fixed asset investment continued to decline, undermining the Aussie’s gains.

To start the week the Australian Dollar maintains its focus on the on-going trade war. Domestically, the AUD looks to the RBA’s monetary policy minutes for direction.

The Great British Pound moved nearly 2% last week against the Greenback, having touched lows of 1.2896 on Monday and a high of 1.3143 on Friday, a level not witnessed for six-weeks. The GBP/USD was boosted on Friday ahead of a speech by Bank of England Governor Mark Carney however failed to hold on to those gains and quickly pulled down to finish the week at 1.3068.

The move lower was on the back of news that the UK Labour Party is set to vote against Prime Ministers Theresa May Chequers Brexit Deal. This means if Conservatives don't support May's plan, the Prime Minister could be ousted before year end. Adding fuel to the fire, Sadiq Khan, London's mayor, called for a second Brexit referendum over the weekend, as he says that the UK departure for the Union will result in civil unrest.

On the technical front we see immediate support sitting at 1.3050 followed by 1.3010, on the upside, resistance sits at 1.3085 and then 1.3125.

Looking ahead we have Rightmove House Price Index and the CB Leading Index.

A raft of US data was released on Friday mostly of which was low tier, the main focus was on US Retail Sales which came in much weaker for August than markets had expected. Monthly retail sales came in 0.1% per cent, widely missing the 0.4% increase expected, retail sales excluding-automobiles rose +0.3% against expectations of a 0.5% increase. A point to note is that there was a solid upward revision to the July retail sales figure and this could be one of the playing factors of a stronger Greenback.

What seemed to be a steady decent for the US Dollar index (DXY) last week having touched lows of 94.36, the DXY closed the week a shade higher at 94.95, the move was surprising given the weak Retail numbers. 10-year Treasury yields hit 3% for the first time in six weeks and on the equities front, both the S&P and Dow are keeping the bullish momentum intact.

Looking ahead we have Empire State Manufacturing Data which is expected at 23.2 vs 25.6 last month.

The Euro is weaker this morning when valued against the Greenback. The Euro climbed to a two-week high earlier on Friday before retreating against the greenback. Greenback finished the week stronger across the board on the back of trade war concerns as US President Donald Trump wants to slap duties on $200 billion of Chinese goods and upbeat US data. U.S.

On the local data front, it all starts this week with Monday’s release of Consumer Price Index (CPI) for August with forecast at 1.0% matching the previous month. Today we will also see the release of Italian Trade Balance also for the month of August.

From a technical perspective, the EUR/USD pair is currently trading at 1.1625. We continue to expect support to hold on moves approaching 1.1600 while now any upward push will likely meet resistance around 1.1660.

Although the CAD dipped against its US counterpart on Friday, the loonie posted its best weekly gains in three months. Friday’s weakness was due to broad based USD strength, as firmer US data and lack of domestic impetus weighed on the loonie allowing the USD/CAD rose 0.3% higher on the day to trade at levels near 1.3037.

Given the Canadian economy’s reliance on commodity exports and the fact that it runs a current account deficit, instructions from US president Trump on Friday to proceed with proposed tariffs on approximately USD200b of Chinese products unsurprisingly hurt the CAD. It is not all doom and gloom as the local unit has been boosted by elevated oil prices and optimism surrounding NAFTA negotiations in recent weeks.

Looking ahead to what is shaping up to be a quiet week for the CAD, we have second tier manufacturing and employment data to start the week which will be of little interest to markets. Traders will be looking towards Thursday’s BOC review and Fridays crucial Retail sales and core CPI releases due out of the domestic economy. From a technical perspective, USD/CAD topside resistance is now seen at 1.3050 whilst on the flipside we now see downside supports at the 1.2975 handle.