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Last week recap
United States Dollar
President Trump has US Trade representatives identifying $200 billion in Chinese goods that could be levied for tariffs. The Chinese equity markets took a tumble on the news with the Shanghai and Shenzhen down 3.8% and 5.8% respectively. China’s Commerce Minister said, the US has initiated a trade ware, and China will respond with “comprehensive quantitative and qualitative measures and retaliate forcefully." The Chinese yuan weakened by 0.62% on the day and the USDCNY is trading at three-month highs of 6.4780.
The United States Dollar eked out further gains against commodity currencies in overnight trading but remains relatively range bound against its counterparts in Europe. The US Dollar Index (DXY) opens this morning at a healthy 94.76, reflecting a slight decline of 0.13%.
USD / CAD
USD / CAD Expected Range:
Trade protectionism and weakness in Emerging Markets have been putting pressure on commodities currencies like the CAD and the AUD. In the case of the CAD, uncertainty around potential OPEC production increases and rate differentials between US and CAD interest rates, have also been affecting its performance versus the USD.
The Canadian dollar is continuing its slide against the US dollar with USD/CAD returning to June 2017 levels. The demise of the loonie has primarily been driven by Trump’s trade wars as well as this week’s OPEC meeting uncertainty. As mentioned previously, if Saudi Arabia announces an increase in oil production to take up the slack from Iran and Venezuela then oil prices could fall and with it the Canadian dollar.
EUR / USD
EUR / USD Expected Range:
1.1527 – 1.1594
The risk of the German CDU/CSU coalition unraveling has somewhat diminished as both parties issued statements postponing decisions until after the EU summit next week. The return of the refugee crisis will undoubtedly require delicate negotiations between Angela Merkel and her coalition partners with the long-term effect being her position weakened rather than the government unwinding. The euro has mostly played the same game as a host of other currencies the last 24 hours as Trump’s tariffs see investors flock to safe havens, including the USD. As such EUR/USD will look to test the key support level of 1.1550.
Attentions now turn to the RBA’s June meeting minutes and commentary from ECB president Mario Draghi for broader direction through trade on Tuesday.
GBP / USD
GBP / USD Expected Range:
1.3149 – 1.3245
After England won their opening match at a major championship for the first time since 2006 anything seems possible, but some things in the FX market don’t change – notably another defeat for the government on the EU Withdrawal Bill (more on that in a moment). Way back in 2006 when Harry Kane was just 13 years old GBP/USD hit the giddy heights of 1.96, GBP/EUR traded between 1.43 and 1.50 and Theresa May was just the Shadow Leader of the House of Commons.
The fact that Theresa May was defeated once again by the House of Lords means that the bill is sent back to the Commons on Wednesday for a debate on the ‘meaningful vote’ issue. On this current course, the UK is set for a soft Brexit. The pound has shrugged these latest Brexit developments off as investors wait for market developments on Wednesday and Thursday.
AUD / USD
AUD / USD Expected Range:
0.7339 – 0.7393
The Australian dollar struggled to gain any meaningful traction through trade on Monday as a broader bearish bias plagued the commodity-driven unit. Testing critical technical supports at 0.7430 and 0.74 the AUD touched intraday lows at 0.7413 as ongoing trade tensions between the US and China continued to weigh on investors’ appetite for risk.
While only marginally lower on the day the AUD is poised to test year to date lows and levels not seen since June 2017 as broader risk-off trade and a broader rebalancing of USD following last week’s ECB policy announcement forced investors to review long positions as the divergence in central bank policies again drives more general direction. Having outperformed through late May and early June the FOMC’s interest rate increase and hawkish policy outlook when contrasted with an accommodative ECB and RBA highlights the ever-burgeoning gap in interest rate yields and will continue to act as a backstop to broader USD support.
New Zealand Dollar
NZD / USD
NZD / USD Expected Range:
0.6872 – 0.6908
The New Zealand dollar opened the week at 0.6935 hoping to cling onto support at the 69 US cent handle. Movements were light with a lack of domestic data and a Chinese bank holiday observed for the day. Investors saw a thirty-point range holding onto the short-term support of 0.6920 with potential bears in play should it not stay at these levels.
On the horizon tomorrow is the latest GlobalDairyTrade, hoping for an improved mark from the swing into negative territory on June 6th with a reading of -1.3%.
Despite seeing an overnight high of 0.6955, we saw the kiwi fall back to open square at 0.6935 against the US Dollar.
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