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Kiwi Posts Modest Gains in Overnight Trade

By OFX

The Kiwi maintained a tight trading range on Tuesday, hovering between 0.6430 and 0.6460 against the greenback and opens this morning buying 0.6469 US cents. The worlds base currency fell against most of the majors during the US session as yields retreated from Friday’s seven-year highs, ultimately allowing the NZD and the AUD to post modest gains. AUD/NZD traded in a 20-pip range between 1.0970 and 1.0990 as relative economic growth and strong gains in key commodities such as iron ore and crude oil continue to favor the Aussie.

We did have some positive news out of the domestic economy yesterday with NZ’s fiscal accounts demonstrating an operating surplus on 1.9% of GDP for FY18 and ANZ’s monthly inflation gauge suggesting next week’s CPI print will be strong. With markets pricing a 25% chance of a rate cut by August next year, a strong print will render this scenario very unlikely.

Looking to the day ahead, we have second tier data in the form of electronic card transactions for NZ whilst offshore cues will be taken from from NY Fed president Williams before we get UK GDP and US PPI numbers tonight. On the technical front, NZD/USD remains well supported at the 0.6350 level with any topside momentum expected to meet resistance on moves approaching 0.6480.

The Australian Dollar edged marginally higher through trade on Tuesday, maintaining the weeks upward momentum and gradual recovery of last weeks losses. With little macroeconomic data on hand to drive direction markets drifted amidst tight short turn ranges as investors appear to take some stock of recent moves as short positions are increasingly stretched.

Having pushed back through 0.71 the AUD opens this morning buying 0.7102 US cents. While the weeks marginal recovery may appear trivial when compared with recent losses it offers some hope broader and deeper losses may be rebuffed. The dollar appears well supported on moves approaching 0.7040/50 and the psychological 0.70 as the recent flurry to short the AUD is showing signs of being stretched opening the door to a possible short-term correction and consolidation above 0.71. That said the US dollars sustained outperformance, Chinese growth concerns and future commodity price pressures continue to weigh on the Aussie Dollar and a persistent push below 0.7050 and 0.70 could signal the next leg in a broader downward drive.

With little of note on todays macroeconomic docket attentions remain with more global risk and equity trends as markers for direction.

Global market movements have mostly been modest in overnight trading with the absence of economic data seeing currency markets listlessly move sideways. Within this context, the Great British Pound was the best performer of the majors with a positive lift of 0.4% against the Greenback. Opening this morning at 1.3141, the Sterling again felt the effects of fresh Brexit headlines.

The Great British Pound enjoyed a small boost from the Brexit headlines as the latest reports suggest the EU and the UK have moved closer to finalising a divorce deal. According to unnamed diplomats, the two economies have narrowed down the possibilities on the Irish border issue, although some key differences remain. Adding to the narrative was some suggested timelines for resolutions with a future trade deal penned in for November and the divorce terms released as early as next Monday. UK’s Brexit Minister Raab also added that the prognosis for reaching a deal was good but tempered expectations by commenting that the government was still preparing for a no-deal Brexit. Overall, it was a positive day for the Sterling which saw a marked appreciation linked to the seemingly increased likelihood of a Brexit deal.

Wednesday looks to be more eventful for the Pound with a larger calendar to digest. Initially the Sterling looks to GDP numbers for direction with Manufacturing Production figures to follow.

The US dollar Index zig zagged its way through Tuesdays as investors remain wary on the back of downside risks to global growth and a lift in bond yields over the past week. The U.S dollar index which measures the Greenbacks strength against a trade weighted basket of currencies rallied from 95.68 up to a high of 96.16 but then fell touching a low of 95.64 on easing bond yields.

Meanwhile on the data front, The NFIB small business optimism index edged down from 108.8 in August to 107.9 in September. However, the index remains near an all-time high with small business owners remaining largely positive about the economy and their business environment. Among the sub-indices, drops were evident in hiring and compensation plans. The proportion of small business owners reporting that their compensation costs had increased rose 5 percentage points in September to a record high 37%, while the share planning to raise compensation costs in the future increased 3 percentage points to 24%. Both are highs for this cycle but are only marginally above the range recorded over the past year

Looking ahead, the New York Fed President John Williams is due to speak at an event in Bali Followed by tonight is US PPI and Final Wholesale Inventories

The Euro stumbled overnight during the local European session after opening just below the 1.15 handle. Dropping to as low as 1.1430 at one stage, the fall was in reaction to ongoing risks in Italian budget developments and continues to hinder the single currency.

Markets have seen consecutive days of a Euro sell off as Italian politics remain a major factor in the EUR/USD inability to stay above the 1.15 handle. German trade balance figures came in positive and up 2.2% for the month of August after a fall in imports with exports remaining strong.

The Euro recovered at the close of play and paired all loses as Italian bonds pulled back from recent highs and a sell-off of the greenback following trade war jitters.

Both French and Italian industrial production is due for release this evening as the Euro opens square this morning at 1.1490

The Canadian dollar continues to lose ground against the U.S. Dollar overnight finding resistance at the 1.3000 figure. On the data front yesterday we saw the release of Canadian Housing Starts for the month in September which dropped sharply from the previous month. Monthly seasonally adjusted annual rates (SAAR) of housing starts was 188,683 units in September, down from 198,843 units in August, and well short of the estimate of 203 thousand.

Looking ahead today and the only scheduled release Building Permits for the month of September with the market forecast of a 0.5% rise in building construction an activity. From a technical perspective, the USD/CAD pair is currently trading at 1.2947. We continue to expect support to hold on moves approaching 1.2950 while now any upward push will likely meet resistance around 1.3000.