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Kiwi steady in face of ongoing risk off trends

By OFX

The New Zealand Dollar continued higher through trade on Friday pushing back through 0.6550 before testing breaks above 0.66. Despite a risk off undertone the NZD continue its upward march and recovery from two and a half year lows at 0.6435 as it moves outside typical risk off trends. The Kiwi remains stubbornly uncorrelated with broader risk appetite tendencies maintaining little proclivity to follow the CNY and equities lower.

Having edged through 0.66 on open the NZD buys 0.6616 at time of writing. With little of note on the domestic calendar through the front half of the week our attentions remain squarely affixed to broader risk flows. Expect resistance on extension beyond 0.66 and approaching 0.6650 with backside support on dips nearing 0.65 and year to date lows at 0.6425/35.

The Australian Dollar tried valiantly in attempts to break through 0.7150 on Friday evening, a barrier tested multiple times last week and is taking its cues from offshore global developments.

Opening Friday treading water just below the 71 US Cent handle, The AUD/USD managed to hold steady despite the release of a raft of economic data in China including Gross Domestic Product which slowed to 6.5% on an annualised rate. The reading came in at its slowest pace since 2009 with the result being offset by a stronger than expected retail sales of 9.2%.

Bottoming out following the news at 0.7090, the Aussie clawed its way back to an intraday high of 0.7150, fueled by a reversal in risk sentiment and uptick in commodity prices, most notably copper futures. Gains were eventually given up into North American trade as the Greenback resumed its strength, closing at 0.7118. On the data front locally, it is light on with direction to be taken from several speeches this week by RBA Assistant Governor Guy Debelle.

From a technical perspective, the AUD/USD pair is currently trading at 0.7020. We continue to expect support to hold on moves to the 71 US cent handle while any upward push will likely meet strong resistance again at 0.7150.

The Pound Sterling moved within a very tight 11-pip range against the Greenback during Asian trade on Friday bouncing between 1.3016 and 1.3027. The European and North America session pushed the GBP/USD higher, spiking to 1.3100 on reports Theresa May floated the idea of a ‘Brextension’ – a one year extension to the already sought two-year transition period. European Council President Donald Tusk has told reporters in Brussels that the E.U would in all likelihood agree to the extension of the transition period if requested by the U.K. The move was short-loved and stabilised around the 1.3065 level before the markets closed for the weekend.

In economic news, Public sector borrowing for September 2018 was at lowest for 11 years. The Office for National Statistics said the UK borrowed £4.1billion in September, some £0.8bn less than the same month a year ago. The numbers are a boost for Chancellor Philip Hammond who is under huge pressure to loosen the purse strings at his Budget later this month.

Looking ahead, the there are no data releases scheduled until tomorrow.

On the technical front, first line of support sits at 1.3010 followed by 1.2980, on the upside, resistance is at 1.3085 and 1.3130.

The USD softened over the weekend as risk sentiment again shifted against the Greenback. The US Dollar Index (DXY) opens this morning at 95.64, reflecting a small retreat of 0.36% that was mostly driven by the headlines out of Europe. Nevertheless, the Greenback remains mostly unchanged against most of its counterparts.

The movements on Friday were primarily motivated from off-shore forces but the US Dollar did see some domestic impacts as well. Starting in Asia, China’s GDP figures were released to the downside, dampening fortunes for the AUD, NZD and CNY and supporting the Greenback. Adding fuel to the trade war fire are reports that Treasury Secretary Mnuchin is open to changing how the US determines which nations are manipulating their currency in a naked grab for leverage against China. In Europe, Brexit negotiations are reportedly 90% done which buoyed the EUR and GBP over the weekend. The EU and the US are also set to review their trade ties with US President Trump notifying Congress last week that he intends to begin official trade talks with the EU. Domestically, the United States enjoyed a small jump in equity markets which also helped the Dollar stave off further losses. Overall, the Greenback has traded within a tight range for much of Friday as markets wait to see how these stories develop.

Moving into the start of a new week, the USD is set to enjoy a quiet day on the economic calendar with the focus firmly fixed on the headlines for direction.

The euro rallied against the Greenback on Friday after it was reported that British Prime Minister Theresa May is ready to drop a key Brexit demand in order to make a deal for Britain to leave the European Union (EU). The euro reached a high of 1.1512 against the U.S. Dollar on Friday after earlier falling to 1.1433 earlier in the session, the lowest since Oct. 9.

Looking ahead today and the macroeconomic calendar will be quite light with the only release the German Deutsche Bundesbank (Buba) Monthly Report. On Tuesday we will see the release of German Producer Price Index (PPI) and EU Consumer Confidence. On Wednesday we will see the release of EU Purchasing Managers' Index (PMI).

From a technical perspective, the EUR/USD pair is currently trading at 1.1515. We continue to expect support to hold on moves approaching 1.1465 while now any upward push will likely meet resistance around 1.1525.

The CAD opens this morning Sydney time buying 0.7630 US cents. Recapping a turbulent week for the Loonie, the domestic unit fell across the board on Friday after weaker than expected retail sales and inflation data were absorbed by markets. These reads come at an important time, given then Central bank’s upcoming monetary policy decision is front of mind for CAD traders at present.

Lasering in on the specifics of the read, we saw headline consumer prices fall by 0.4% in the month of September, representing this is the biggest month to month decline in almost a year. On the yearly metric, prices only rose 2.2% in September, a sharp fall from the 2.8% we saw in August. Given markets were expecting increases of 0.1% and 2.7%, it was not surprising to see USD/CAD break through key technical support to touch monthly highs of 1.3120 before retreating slightly.

So far the controversy out of Saudi Arabia has not had any tangible affects on oil markets or financial markets more broadly. Given the Loonie’s correlations with commodity markets and oil in particular, CAD traders will be watching developments on this front very closely. The key risk event this week for the Canadian dollar is the Bank of Canada’s monetary policy decision on Tuesday. It will be interesting track the path of CAD positioning ahead of the release, especially after the weaker than expected domestic data last week. Outside of this, the CAD will continue to take its cues from oil prices and risk sentiment more broadly.

On the technical front, we now see key technical supports at the 1.3065 level however expect any downside breaks to test the key psychological handle of 1.3000. On the flipside, we expect USD/CAD to meet resistance on moves approaching 1.3160.