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Kiwi dollar steady ahead of US employment report

By OFX

The New Zealand dollar is slightly weaker this morning when valued against the Greenback, down 0.17 percent in the last 24 hours, reaching a low of 0.6744. Overnight we saw risk-off moves as European and UK officials are pessimistic about the chances of a breakthrough in Brexit talks. The Euro currency suffered one of its worst day’s as the ECB significantly cut its growth and inflation forecasts and shifted out the timing of any policy tightening measures.

On the release front today, we saw quarterly Manufacturing Sales which came in at -0.5 percent. Looking ahead tonight and all eyes will be on the US employment report will be the key focus for the market, which is expected to show robust employment growth.

From a technical perspective, the NZD/USD pair is currently trading at 0.6754. We continue to expect support to hold on moves approaching 0.6740 while now any upward push will likely meet resistance around 0.6800.

The Australian dollar continued its slide overnight dropping a further 0.2% from yesterday’s open of 0.7030. In what has been a turbulent week for the Aussie, a test at the psychological support levels of 70 US cents looks inevitable. Retail sales saw an increase of 0.1% after a decline of 0.4% in December. The figure still missed market expectations of a lift of 0.3% for the month of January and further supports the potential for the first interest rate cut this year since 2016.

Trade Balance figures saw a large surplus with both imports and exports rising. There was a 5% boost in exports to $35.9 billion with Gold tripling to $2.2 billion in January.

The AUD/USD tested its lowest levels overnight since the flash crash at the start of January hitting 0.7005. The Australian dollar was dragged lower by a surge in the US dollar overnight as the EUR/USD cross currency pair was hammered following a change in its forward guidance for growth and inflation from the ECB.

The Australian dollar opens this morning at 0.7015 with further direction taken from offshore leads this evening with the release of Non-Farm employment figures in the United States and Chinese inflation figures expected tomorrow.

The European Central Bank triggered a market reaction overnight, with some spill over into the GBP causing it to drop against the USD. Opening at 1.3074 this morning, the Pound continues to fall further currently hitting a one-week low. Bank of England Monetary Policy Committee member Tenreyro has claims that the BoE is more likely to cut interest rates than raise them in the event of a no-deal Brexit, a situation that is still very much up in the air.

In terms of GBP macroeconomic data, Consumer Inflation Expectations will be released by the BoE tonight. Showing the percentage of consumers that expect the price of goods and services to change in the next 12 months, this expectation of future inflation can manifest into real inflation as workers tend to push for higher wages when they believe prices will rise.

The US dollar advanced through trade on Thursday buoyed by a Euro sell off in the wake of the ECB’s policy meeting and surprise renewal of stimulus measures. The dollar index surged through 97 as the worlds base currency surged against the combined unit and the most liquid of FX pairings shifted as investors piled into the USD.

The ECB’s move highlights a shift in global central bank policy thinking and a distinct move away from a tightening bias. Anemic global growth has forced policymakers to reassess policy guidelines and pivot back to accommodative and loose monetary policy programs in a bid to stimulate economic development. This shift has cushioned the fallout from the Federal Reserves move to a neutral policy setting, prompting investors to still seek out the USD as a yield or carry trade play.

With the Fed focus now keenly on domestic data sets attentions turn to Payroll data today for guidance and a window into US economic health. Sustained strength and an uptick in wages could help fuel further USD upside into the weekend.

The Euro tumbled through trade on Thursday, falling through 20-month lows after the ECB surprised investors and announced it will re-introduce a new round of quantitative easing and postpone future rate hikes until 2020. While persistent softness across key growth and inflation indicators had forced investors to re-assess expectations for central bank guidance, many investors expected the ECB would refrain from changing its current policy setting until H2 2019.

The Euro fell through key supports at 1.1250 and 1.12, touching intraday lows at 1.1181 and is now poised for a deeper downward correction. The combined currency could shift toward 1.10 in the coming weeks as the USD maintains risk off support and the Gap between US and German treasury yields widens.

With little of note on today’s domestic docket we anticipate further reaction to yesterday’s decision. A consolidated move back toward supports could see the Euro steady amid lower short-term ranges while a break toward 1.1150 could spell the start of a deeper downward correction.

The Canadian dollar continued the trend of the week and further depreciated against the Greenback. Opening this morning at 1.3450, the Loonie only marginally fell after precipitous falls the previous day but nevertheless the Canadian dollar remains under pressure.

With a lack of news in other jurisdictions, the ECB’s releases in the Eurozone took center stage and duly disappointed the market. The ECB significantly cut its growth and inflation targets, as well as shifted the timing of any policy tightening measures to beyond this year. Adding fuel to the fire was the bank’s announcement of a fresh batch of cheap loans with two-year maturities to the banks. The dovish tone of the ECB’s announcement sent ripples across the entire market with the risk-off sentiment prevailing in nearly all markets. The Canadian dollar was no exception which found itself retreating against the safe-haven US dollar.

The Loonie now looks to an eventful Friday to close out the week with the unemployment rate set for release. Canada’s southern neighbour is also set to release employment data and the Chairman of the Federal Reserve is scheduled to speak. Finally, Chinese year on year inflation numbers are also due to be reported, closing out what could be an interesting week.