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NZD tests 67 US cent handle

By OFX

The New Zealand dollar opened the week at 0.6735 and held up above the 67 US cent handle as markets observed thin liquidity. Both United States and Canada observed bank holidays on Monday as the Kiwi rallied to an intraday high of 0.6750 before reversing all gains into the European open to test support at 0.67.

The NZD/USD whipsawed around overnight as it rallied back up to 0.6755 as short positions appeared to be unwound, the NZD was also up against the Australian dollar overnight to as high as 0.9360.

This morning sees the release of FPI for the month of November which measures the price of food and food services purchased by households as markets have observed a decline for the two previous readings.

The New Zealand Dollar opens lower this morning at 0.6715.

The Australian dollar moved lower through trade on Monday, continuing Friday’s downward correction and slipping back below 0.72 US cents. The AUD failed to capitalise on an uptick in equities throughout Asian trade as concerns surrounding Brexit, Italian budget woes and jitters across tech stocks dampened risk appetite. With US investors enjoying an extended weekend in observance of Veteran’s day trading was thin across the North American session, compounding volatility and perhaps exacerbating haven plays.

The AUD has suffered a sharp correction through the last two trading sessions, giving up almost 100 points to trade a full cent lower on open this morning. With the midterms now behind us attentions have again turned to US/China Trade and the burgeoning gap in yields and monetary policy. While a broader risk off tone has helped foster demand for the worlds base currency investors appear reluctant to extend AUD upside, selling into the recent rally.

Attentions now turn to a docket dominated by headline data events. NAB business confidence will drive direction through trade today while Wednesday quarterly wage price index will be crucial in determining tightening labour market conditions and a possible uptick in consumer lead growth. An upside surprise could help foster a move back toward 0.73 as deflationary pressures ease.

The Great British Pound fell again on Monday against the Greenback to a low of 1.2827 as the Brexit saga continues. With less than five months before Britain is due to leave the EU on March 29, negotiations are still stuck over how to prevent a return to a hard border between British-ruled Northern Ireland and EU member Ireland.

On the data front today we will see the release of UK employment figures. The UK unemployment rate for the three months to September is expected to remain unchanged at 4.0%, while wages including bonuses are seen up by 3.0% vs. the previous 2.7%.

From a technical perspective, the GBP/USD pair is currently trading at 1.2853. We continue to expect support to hold on moves approaching 1.2825 while now any upward push will likely meet resistance around 1.2890.

The US Dollar Index saw impressive gains of 0.80% to start the week higher as it rallied to an overnight high of 97.66, levels not seen since June 2017. Political risks in Europe saw a sell off on both the Euro and Sterling, benefiting the Greenback overnight. Markets turned positive for the worlds largest traded currency, reversing recent drops in the USD following the fallout from mid-term elections.

Furthermore, market participants look to position themselves in the lead up to next month’s FOMC rate decision as it is widely expected that the Federal Reserve will increase intertest rates for a fourth time this year. The CME watch tool currently shows a 76% chance of a hike on December 19th.

San Francisco Federal Reserve President Mary Daly has come out in support overnight of gradual support hikes as the state of economy remains “very good”. This evening Fed Reserve Governor Lael Brainard is due to speak at the Fintech conference in Philadelphia.

The Euro came under significant pressure in overnight trading as a number of events conspired to force the Fiber lower. The Euro hit its lowest level since June 2017, opening this morning at 1.1235 against its US counterpart.

The Euro found itself suffering the consequences of politically instability in the UK as Brexit concerns deepened across the channel. Speculation of more UK cabinet ministers resigning underpinned the declines in the Sterling, which dropped 0.9%. Further resignations put Prime Minister May’s Brexit plan in a precarious position with the likelihood of it passing Parliament further reduced. The Euro also found little support from Italy which stalwartly refuses to concede to EU demands. Italy is required to provide a revised budget to the European Commission by the end of today, although Deputy PM Salvini noted that “the budget doesn’t change because the EU sends us letters”.

Moving into Tuesday the Euro is set to enjoy a slightly livelier domestic calendar with German CPI and Economic sentiment set for release. Attentions will also remain affixed to on-going Brexit headlines and the Italian budget.

The Canadian dollar faced sustained downward pressure through trade on Monday consolidating moves below 0.76 to touch intraday lows at 0.7551. With markets closed in observance of Remembrance Day moves were somewhat muted, muffling a rebound in oil prices and restraining any meaningful CAD recovery. Oil prices jumped 1 percent after Saudi Arabia and its OPEC partners announced a cut to output in line with softening demand. The spike in value of Canada’s primary export did little to drive the currency upward as the Loonie continues to test multi-month lows.

With investors returning today attentions remain affixed to ongoing trade developments and broader oil prices. Having broken initial barriers of support at 0.7590/0.76 we now look to a extended push toward and through 0.75 as a signal the downward correction has another leg.