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Kiwi brushes aside RBNZ dovishness on heightened risk appetite

By OFX

The New Zealand dollar rallied into close on Friday, bouncing off weekly lows and pushing back through 0.68 U.S Cents. Risk on trade bolstered demand for the commodity led unit retracing losses suffered in the wake of comments from RBNZ Deputy Governor Geoffrey Bascand. Bascand proposed increasing banks capital requirements, a move that would push lenders to increase domestic borrowing costs, and in turn force the RBNZ to cut official interest rates to ensure the tightening financial conditions don’t force the broader economy to undershoot inflation and growth targets.

Having touched 0.6768 the Kiwi rallied in a risk on environment as US-China trade hostilities appeared to ease, as president’s Xi Jinping and Trump claimed talks were progressing well and an extension in the Tariff détente may be extended beyond this Friday. Easing tensions and the promise of a return to traditional trade relations have emboldened markets appetite for risk and heightened hopes for an uptick in global growth.

Attentions today turn to retail sales data today, while trade balance and Business confidence headline Wednesday and Thursday’s dockets. Watch supports at 0.6750 and upside resistance on moves above 0.6930.

The Australian Dollar oscillated between gains and losses on Friday before ultimately settling in neutral territory at 0.7130. Opening this morning relatively unchanged at 0.7135, the Aussie looks to a quiet economic calendar for direction.

Initially the Aussie was well placed after some positive domestic employment data was released earlier last week. This was quickly unwound however when Chinese news indicated the country had capped coal imports from Australia. The Australian Dollar did have some fortunate news though which saw the Aussie recover slightly to today’s open. Friday saw the Greenback depreciate marginally as well as the RBA’s Governor Lowe testifying before a special committee. Governor Lowe mentioned in his speech that he feels weak wage prices are a larger risk to the economy than falling house prices, an encouraging remark considering the relatively positive employment reading earlier in the week.

Moving into the start of a new week the Aussie is set to enjoy an uneventful economic calendar with direction to be driven by off-shore forces and market sentiment.

The Great British Pound is managing to hold on to gains made earlier in the week against most major currencies on the back of cementing expectations that a 'no deal' Brexit will be avoided on March 29. The EU and UK have agreed that talks ‘should now continue urgently at a technical level’ as the Brexit clock continues its count down. The GBP/USD closed the week at 1.3053 coming back from lows of 1.2979 earlier in the session as more MP’s decided to resign to their parties leaving both parties increasingly vulnerable in any future votes in the House of Commons.

The UK Parliament wants legally binding changes to the Irish backstop, something that EU's representatives refuse to concede. The UK Prime Minister should bring an upgraded deal to the Parliament this Wednesday. Failure to win support on it, could result in MPs taking over Brexit negotiations and volatility for the Pound.

Looking ahead, Bank of England Governor Mark Carney is to speak at an event in London.

The greenback closed slightly higher for the day seeing a 0.12% rise on the US Dollar Index despite some disappointing data released in the United States. Opening at 96.53, Philly Fed Manufacturing Index came in at -4.1 and turned negative for the first time in three years. The sharp drop in February orders is in line with forecasts of a global industrial slowdown.

Dipping to intraday lows of 96.30 following the news, the decline in price was also contributed by an unexpected fall in durable goods orders. Despite the negative releases, the DXY traded in a tight trading range and finished in positive territory for the day and opens this morning at 96.63.

Several FOMC members are due to speak at the US Monetary Policy Forum in New York this evening with investors looking for clues for future monetary policy changes.

The Euro edged higher through trade on Friday, moving toward the upper end of recent ranges on heightened investor appetite for risk. Pushing through 1.1350 the combined unit touched intraday highs at 1.1370 on reports US-China trade talks were progressing with both Presidents Xi Jinping and Trump claiming significant progress had been made. Markets were tempted back toward riskier assets with stocks and commodities advancing on dollar softness, while the Euro continued its risk correlation edging higher in the risk on environment.

While the risk on environment has prompted a short term upside the Euro remains vulnerable to broader bearish moves. Persistent and softer macroeconomic data sets have undermined upward trysts and opened the door for a break below 1.1250. Markets are closely watching key data sets to determine whether recent sluggishness will extend throughout the year ahead. A decline in German business confidence on Friday suggests the outlook remains uncertain and attentions now turn to Inflation and manufacturing data sets this week. Sustained weakness will likely prompt a move back to last weeks lows and a break back below 1.13.

The Canadian Dollar is significantly stronger as we open this Monday morning vs the US Dollar. The USD/CAD shed 0.80% on Friday moving from a high of 1.3241 touching a low of 1.3133 despite soft numbers for Retail Sales data for the month of December. Sales dropped 0.1 percent extending a 0.9 percent drop in November - the most sluggish back-to-back monthly performance last year. The weak performance highlights a broader trend of slowing consumption by households as they face rising borrowing costs, weakening housing markets and volatility in financial markets.

Appetite for the Canadian Dollar remains high as trade optimism offset the poor numbers. Markets remain optimistic that the U.S. and China will reach a trade deal. Months of bruising tit-for-tat tariffs have hurt global growth and led to a slowdown in China. The sides have agreed to extend talks, and there is a strong chance that the U.S. will suspend the March 1 deadline, when punishing tariffs against China were supposed to take effect.

There are no scheduled releases today, although this week is a busy week with corporate profits, inflation and current account data all due.