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New Zealand Dollar drops to three-week lows

By OFX

The New Zealand Dollar began Friday’s session hovering comfortably above the 0.6850 level which has been a short-term resistance level for most of December. However, the NZD/USD pair came under heavy selling pressure as weaker-than-expected Chinese Retail Sales and Industrial Output saw a sell-off in global equities which in turn led the downward decline in the pair. The Kiwi touched a three-week low of 0.6777 and is just under the 68c mark at the time of writing.

On the data front, Friday saw the release of NZ Manufacturing Index which slowed slight in the month of November but remained around its long-term average levels. The Index edged down by 0.2 points from the previous month to 53.5. A reading above 50 indicates an expansion in activity, while anything below that threshold indicates a contraction.

Looking ahead, the local calendar is light today, the main focus this week domestically is third-quarter gross domestic product due out on Thursday.

The Australian dollar finished the week lower when valued against the U.S dollar falling to 0.7176, not far from a 4-week low of 0.7150, undermined by renewed concerns over the outlook for global economic growth. On Friday we saw the release of Chinese Retail Sales data which increased by 8.1% YoY in November, well below the expected 8.8%. We also saw the release of China Industrial Production in the same period which rose by 5.4%, falling short from the market's expectations of 5.9%.

On the release front, and Australia’s government will release its mid-year economic and fiscal outlook (MYEFO) later today. The Coalition is expected to reveal a multi-billion dollar improvement in the federal budget position, including a doubling of the projected surplus in 2019-20 to around $4 billion.

From a technical perspective, the AUD/USD pair is currently trading at 0.7171. We continue to expect support to hold on moves approaching 0.7150 while now any upward push will likely meet resistance around 0.7210.

The GBP continued it’s volatile week, opening at 1.2604 this morning against the USD. The Brexit saga continues with new developments almost every day. While PM Theresa May survived the confidence vote, opposition to the Brexit withdrawal group remains stout. There have been multiple exchanges between the UK Parliament and the EU leaders regarding the Irish backstop, which has been a key issue that has not yet been resolved.

The upcoming week sees multiple releases by the Office for National Statistics which are all expected to have a meaningful impact on the Pound. The earliest release will be on Wednesday, regarding the CPI and PPI. These indices track the change of price in goods and services purchased by consumers and manufacturers respectively. Both are a leading indicator of inflation and used primarily as the central bank’s inflation target.

The US Dollar Index touched high of 97.71 a level not witnessed since June 2017 on the back of investor fears and safe-haven buying. Economic data from China and Europe led the Greenback to new heights as declining Eurozone PMI added to the doom and gloom for the economy as well as weaker-than-expected Chinese retail sales and industrial production figures added to the malaise.

This week investors will turn their attention to monetary policy as statements from the US, Bank of Japan and Bank of England are all due. We can expect to see some volatility across the equity and currency markets especially as this is the last week before trader square up position before the Christmas holiday.

Friday was a day to forget for the Euro, which shed 0.5% on the day. Opening this morning at 1.1304, the Euro fell victim to a variety of internal and external pressures.

European PMI’s kicked things off on Friday with a batch of weaker than expected figures. In particular, the French Services and Manufacturing PMI’s dropped below 50, signalling a contraction. The result however, seems to be due to the recent Yellow Bests protests which continue to weigh heavily on business sentiment. The composite PMI for the entire Eurozone also fell, although to a healthier 51.3 reading. The result was however, still its lowest level since November 2014.

Broader factors continue to weigh on the Euro as well, with general global market anxiety continuing to undermine the Euro. Concerns over trade, Brexit and global growth continue to have a dampening effect on the Euro.

Moving into a new week, the Euro continues to keep a close eye on the headlines. CPI and Trade balance figures are also set to be released on Monday.

The Canadian dollar continued to see downward momentum on Friday and closed lower against the US Dollar for the fourth straight week. Opening at 1.3350, the US Dollar traded higher after the spotlight on retail sales in the United States saw a mild jump above expectations. With oil prices plummeting 30% since October from $86 a barrel to $58 in December, the Canadian dollar continued to be subdued in the market as Bank of Canada looks to keep interest rates on hold at 1.75% from its last hike in October. It’s next increase will depend on how long the oil-price slump continues for and how the expansion of business growth for the local economy fares in future months.

The USD/CAD finished 0.2% higher after testing intraday highs of 1.3400 as a risk off market ensured little upside for the Loonie to close the week at 1.3380.

This week markets will focus on this week’s release of Canadian inflation figures which could have a major influence of the timing of future interest rate hikes by the Bank of Canada. There is a possibility of a major decline in CPI for the month of November following the recent downturn of energy prices.

The USD/CAD opens this morning at 1.3382