Kiwi remains range bound for now
Wednesday 16 January, 2019
Daily Currency UpdateThe New Zealand Dollar edged towards 0.6850 intraday however failed to break this level and as the Asian session came to a close the NZD/USD pair began its decent back towards the 68c mark. Local data didn’t have much of an impact with the latest NZIER Business Confidence survey for Q4 of 2018 reporting that NZ businesses remain downbeat about the economy. A net 18% of businesses expected general economic conditions to worsen over coming months – an improvement from the net 28% that had a negative view in the previous quarter. Meanwhile, Food Price Index fell 0.2 percent in December compared with November and seeing a 1.0 percent increase in the year. The food price index accounts for about 19 per cent of the consumers price index, which is the Reserve Bank's mandated inflation target when setting interest rates.
Overnight we also saw the bi-weekly GDT auction, the index rose 4.2 percent from the previous auction with the average price coming in at US3,057 a tonne. Whole milk powder, skimmed milk powder, lactose, butter, cheddar and anhydrous milk fat all climbed, bucking the trend was rennet casein with fell 1.4 percent.
There are no scheduled macroeconomic releases today. the main focus remains in the UK where British Prime Minister Theresa may has been defeated by a record margin of 230 MPs over the Brexit Withdrawal Agreement. The historic defeat throws the Government - and its plans for Brexit into crisis.
Key MoversThe Australian dollar is little changed this morning when valued against the greenback. The Aussie reached an overnight high of 0.7225 continuing to track the movements in the Chinese yuan. In the UK overnight after eight days of debate the House of Commons rejected the deal that Theresa May negotiated to govern the withdrawal of the UK from the European Union by 432 to 202. The biggest Commons defeat for a British government in over a century. The AUD/GBP pair is currently trading at 0.5593 (1.7879).
Looking ahead today on the release front we will see Westpac-MI Australian consumer sentiment report for January and Chinese new home prices for December. Although British politics looks set to drive overall market direction today.
From a technical perspective, the AUD/USD pair is currently trading at 0.7200. We continue to expect support to hold on moves approaching 0.7150 while now any upward push will likely meet resistance around 0.7250.
Volatility was expected in the GBP as the Parliament Brexit vote went underway this morning, leading to a ‘Reject’, which was to be expected. The vote decided the passage of the deal triggering article 50 with the European Union. The Pound dipped this morning just before the vote, to drop to the resistance level of 1.27, before jolting back up to open at 1.2876 against the USD this morning. Theresa May’s spokesperson has confirmed she is still planning to take the UK out of the EU on previously specified date March 29th, and is not looking to extend the Article 50 deadline.
In further macroeconomic news, Bank of England Mark Carney speech is scheduled for late this evening. Gov. Carney will speak about the Financial Stability Report before the Treasury Select Committee in London. Volatility is often experienced during his speeches as traders attempt to decipher interest rate clues. CPI data will also be released shortly afterwards, showing the change in the price of goods and services purchased by consumers. Also expected to have a major impact on the currency, it looks to be a tumultuous week for the Pound.
Overnight and the US government shutdown continued with US President Donald Trump inviting congressional Democrats and Republicans to meet for lunch in the White House, in an attempt to solve the stalemate situation, but Democrats refused to attend.
A weaker-than-expected December economic data (Chinese exports release) this week has engendered fears of a slowdown in the world’s second-largest economy with further speculation over the prospect of for further economic stimulus. The soft Chinese data sparked the sell-off and benefited the Japanese yen (USD/JPY 109.75) and at the cost of the Australian dollar (AUD/USD 0.7200).
In the UK overnight the House of Commons rejected the deal that Theresa May negotiated to govern the withdrawal of the UK from the European Union by 432 to 202. On the back of the vote the GBP/USD pair fell mid-US afternoon to 1.2749, its lowest for this week, before recovering around 1.2870. From a technical perspective, the GBP/USD pair is currently trading at 1.2866. We continue to expect support to hold on moves today round 1.2830 while now any upward push will likely meet resistance around 1.2900.
The Euro retreated through trade on Tuesday slipping below 1.14 to touch intraday lows at 1.1380 following a slowdown in German GDP data and heightened Brexit uncertainty following a rejection of the current exit proposal by UK parliamentarians. The German economy (Europe’s largest) expanded at the slowest rate in 5 years, and although data printed largely in line with expectations, the soft read only add to a narrative of pessimism and uncertainty surrounding the global growth outlook.
The common currency has struggled to make significant inroads against major counterparts throughout the year to date, despite a contraction in the worlds base currency and correction in expectations for US monetary policy. Ongoing growth concerns and political instability continue to weigh on investors expectations for European monetary policy change and many are now pushing back calls for the ECB to tighten monetary policy.
With risk demand deflated attentions turn to ECB president Mario Draghi for direction and possible forward guidance ahead of next weeks policy meeting.
The Canadian Dollar has consolidated its position against the greenback overnight as investors centered their attentions across the globe to Brexit vote developments in the UK. As heightened volatility was seen on the cable cross, there was little effect on the USD/CAD overnight eventually seeing a meagre 0.1% drop.
Initially gains were seen for the Loonie as a disappointing PPI reading in the United States saw the greenback sold off to a low of 1.3230. Oil prices were positive on Tuesday as West Texas Intermediate gained more than 2% overnight to $52 a barrel.
The U.S. Dollar recuperated losses sustained during the North American session as the greenback rose back into positive territory and intraday highs of 1.3293. Market participants look to position themselves into Friday evenings inflation release in Canada, potentially giving further clarity on whether the Bank of Canada will potentially look to hike interest rates further in 2019.
The USD/CAD opens this morning at 1.3270
- NZD/AUD: 0.9410 - 0.9540 ▼
- GBP/NZD: 1.8625 - 1.9125 ▲
- NZD/USD: 0.6750 - 0.6850 ▼
- NZD/EUR: 0.5860 - 0.6020 ▼
- NZD/CAD: 0. 8980 - 0.9120 ▼