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Unemployment levels at decade lows

Daily Currency Update

The New Zealand dollar saw further pressure over the last twenty four hours as mixed domestic data pushed the local currency to close underneath the 70 US cent handle for the first time this year. Opening the day above support levels, the Kiwi hung on to intraday gains after the NZ unemployment rate hit the lowest level in a decade at 4.4% in line with expectations. Total Jobs for the quarter grew by 15,000 jobs and 0.6% for the quarter.

The NZD/USD cross saw eventual highs of 0.7025 but could not hang onto any sustained rallies as investors sold off the Kiwi in droves as US Dollar strength continues to be the main drivers this week. Markets saw an overnight low of 0.6986 and the New Zealand Dollar opens this morning at 0.6995.

Key Movers

Enjoying a more stable day when compared to the carnage which has been witnessed for much of the past week, the Australian dollar has been more settled over the past 24 hours. Doing well to navigate an intricate overnight session which included updated signals from the US Federal Reserve, policy makers showed that they remain in no rush to accelerate rate rises, despite the emergence of inflation from the world’s largest economy.

With the tide still very much favouring the US dollar, energies today will turn to Building Approvals as well as Trade Balance numbers from Australia as investors look to capture levels back up above the 75 US cents barrier. Having traded between a low of 0.7475 and a high of 0.7537 yesterday, the Australian dollar opens virtually unchanged versus its US Counterpart at a rate of 0.7490.

The Great British Pound remains the weakest currency across the board however found some relief overnight helped by an upbeat UK Construction PMI data, which recovered from March's slump into contraction territory, to print 52.5 in April, also above market's forecast of 50.5. The Sterling recovered from a fresh multi-month low against the Greenback of 1.3555 before reaching a high of 1.3665.

The GBP/USD pair is currently trading at 1.3575. We now expect support to hold on moves approaching 1.3580 while any upward push will likely meet resistance around 1.3660. Looking ahead today will see the release of the Market Services PMI this Thursday, expected at 53.5 from the previous 51.7.

Another positive session for the USD last night, with the DXY Index, which indicates the general value of the USD versus world major currencies, breaking above its 200-day moving average of 92 and closing more than 0.60% up.

The USD is now up for the year, in line with the increase seen in US yields across the curve and ahead of tonight’s FOMC meeting where even though a hike is not expected, the market will be paying special attention to changes in the statement that could signal further acknowledgment by the FED about the progress toward their inflation objective.

In terms of economic data, ISM manufacturing came slightly lower than expected by the market, but prices paid rose to new cycle highs (highest since 2011). We will get mortgage and employment data tonight, before the FOMC rate decision.

The EURUSD closed below its 200-day moving average and important support level of 1.20, as USD strength continued against almost all other currencies. The currency is now flat on the year and the next few months could be challenging as it seems the European Central Bank, is in no hurry to discuss the end of their Quantitative Easing program, which doesn’t bode well for the Euro’s near-term view.

Additionally, latest CFTC data shows asset managers are widely long EUR, which raises the risk of bigger moves if weakness continues. In that sense, Volatility has also been picking up, in line with slip below 1.20 and the pair now sitting at a new multi-month low.

The CAD has been one of the few currencies that held relatively well versus the USD, probably due to a stronger than expected GDP report and comments from Bank of Canada Governor Poloz who said the current policy rate is “well below” the neutral rate. The CAD was losing more than 0.60%, with the USDCAD trading as high as 1.2914, its highest level in almost a month, but managed to recover afterwards at the end of the US session, to close almost flat. It’s also important to note that this recovery came despite some oil weakness.

Expected Ranges

  • NZD/AUD: 0.9300 - 0.9360 ▼
  • GBP/NZD: 1.9350 - 1.9500 ▼
  • NZD/USD: 0.6950 - 0.7040 ▼
  • NZD/EUR: 0.5820 - 0.5880 ▲
  • NZD/CAD: 0.8950 - 0.9050 ▼