Plenty of market moving US data being released; NZD continues to ease against USD; Australian inflation data important for pricing future RBA cuts

The New Zealand dollar has continued to ease against the USD since Friday. The move reflects general selling of the commodity currencies and the recent further strength in the USD. This week is looking very quiet locally so look for direction to come from tomorrow’s Australian inflation data and US data over the week. We favour selling rallies on the week towards .7180 targeting trend-line support which is coming in around .7060 currently (rising).

NZD/AUD (AUD/NZD)

The New Zealand dollar has eased against the Australian dollar since our commentary on Friday. Selling of NZ dollars around .9425 (1.0610) capped the rally on Friday night and weakness in the NZD so far this week has seen the cross ease in recent trade. In focus for this week will be tomorrow’s Australian inflation data which will have an important impact on pricing for the future chance of a further RBA rate cut. Critical support on a strong number is eyed in the .9250/85 zone. (1.0811/1.0770 resistance)

NZD/GBP (GBP/NZD)

The New Zealand dollar has weakened against the UK pound since Friday. The easing comes on the back of the selling seen in the commodity currencies against the backdrop of a stronger USD. GDP data from the UK is in focus this week, whilst on the local front eyes will turn to Australian inflation across the Tasman tomorrow. For now a temporary NZD highs looks to have been put in place last week with current momentum pointing for a test towards first key support in time, although headlines out of the UK are unpredictable and the big picture around the UK remains one of uncertainty.

 NZD/CAD

The New Zealand dollar is unchanged against the Canadian dollar since Friday’s report. Both currencies have been underperformers in recent trade as the commodity currencies have performed poorly in the stronger USD environment. With little in the way of data this week look for energy pricing, the Australian inflation data tomorrow (for influence on the NZD) and the outcome of the EU-Canada free trade deal for direction (which is currently being blocked by Belgium). We lack a strong bias, although marginally favour lower levels overall.

NZD/EURO (EURO/NZD)

The New Zealand dollar has eased against the Euro since our report on Friday. The move reflects the recent underperformance of the commodity currencies in the face of solid continued demand for the USD. With little in the way of material data from either region this week’s moves will come down to external factors such as those of recent days to drive trade. We lack a strong bias, although for now the momentum has swung to the NZD downside since last week’s highs.

NZD/YEN

The New Zealand dollar has drifted lower in trade against the Japanese Yen since Friday. The move reflects the weakness in the NZD in recent days which has suffered on the back of commodity currency selling. Data calendars from both countries are unlikely to lead to any moves so for now the most likely driver looks to be tomorrow’s Australian inflation data and the overall appetite for the commodity currencies. This oscillating appeal has us favouring more range trading this week.

AUD/USD

The Australian dollar has eased further against the USD since Friday. The move reflects the fallout from Thursday’s Australian employment data miss and the reduced present appeal for the commodity currencies as the greenback continues to post impressive gains. Look for direction this week to come from tomorrow’s important Q3 Australian inflation data and the hue of the US data throughout the week. Current momentum points to the downside as being more vulnerable for now targeting .7500/10.

AUD/GBP (GBP/AUD) 

The Australian dollar is sitting largely unchanged in trade against the UK pound since Friday. There has been little in the way of news for either currency in the interim which has seen both drift lower as the greenback continues to rally strongly. In focus this week is Thursday’s UK GDP data and tomorrow’s Australian inflation data. We have little in the way of immediate bias, although for now the uncertain prospects for the UK should favour the AUD over the GBP in time.

AUD/EURO (EURO/AUD)

The Australian dollar is little changed in trade against the Euro since our report on Friday. There has been no key news to influence either currency in the interim which has left both to drift lower on the back of continued USD strength. Key to the cross this week is tomorrow’s Australian inflation report which looks likely to have a significant bearing on Australian interest rate expectations. We have little bias ahead of this key data release, although the medium-term trend is for higher levels.

AUD/YEN

The Australian dollar is largely unchanged in trade against the Yen since Friday. Lows above 78.70 were seen on Friday as the AUD/USD lows coincided with a minor rally in the JPY against the greenback at the time. In focus this week is Australia’s key inflation data tomorrow which could have the potential to change the recent range trading that we have seen in this cross. We have little overall bias although for now the momentum points to moderate potential upside.

AUD/CAD

The Australian dollar has lifted moderately in trade against the Canadian dollar since our commentary on Friday, although sits off the 2 year+ highs which traded yesterday. The move comes on the back of further CAD selling as news of a Belgium stumbling block to the EU-Canada free trade deal emerged overnight. In focus this week is tomorrow’s Australian inflation data, and any developments in the energy markets/the EU-Canada free trade agreement. We lack any bias, although momentum for the AUD remains positive on this cross.

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Market commentary:

This week will again be busy in the US. Key data starts later today when we receive the Conference Board's consumer confidence numbers for October. Tomorrow’s data of interest includes new home sales and the flash estimate of services sector activity and advance data on the trade balance. Thursday’s data includes durable goods orders (a proxy for business investment) and pending home sales. However, the most important data is arguably Friday’s advance estimate of economic growth for the September quarter, where analysts expect June’s soft 1.4% annual pace to rise to a healthy 2.5%. Quarterly data on employment costs will also be released on Friday which is important for the assessment of future inflation and interest rate outlook.

Australia

Early gains last week were quickly overturned in trade on Thursday after the release of September’s employment data. The data was disappointing and showed annual jobs growth which has now slowed to 1.4% and hours worked down -0.24%. The large loss in full-time roles (53k) continues the disturbing trend which has now seen full time employment turn negative year on year. Other data included NAB business confidence which gained from the quarter prior and the Westpac-MI Leading Index which registered its strongest growth rate since December 2013, although neither had any market impact. The RBA minutes passed with little fuss and point to little chance of a rate cut next month, although critical to this prospect is tomorrow’s third quarter inflation data. Other data to be received during the week will be the Q3 export/import pricing (Thursday), and HIA new home sales and producer prices on Friday.

New Zealand

The NZD has started trade this week under the dual influence of the selling pressure which has been seen in the key CAD and AUD commodity currencies and continued demand for the greenback. Last week started well for the local unit as it reacted to higher than expected inflation data for the third quarter and a moderate rise in dairy prices. Pressure which was seen later in the week came in a large part due to the poor performance of the AUD, although demand for the CAD has also been weak, this as the market reacted to a dovish BoC and fresh news overnight of a blocked EU-Canada trade deal. Other data in NZ last week was Friday’s migration numbers which set a new high of 6,340 for September. This week is set to be quiet locally with just trade data on Thursday which will mean investors will look to the US numbers and the Australian inflation data tomorrow for influence.

United States

The greenback has got off to another positive start in trade this week after better than expected manufacturing PMI data overnight and after comments from the St. Louis Fed President Bullard who noted that December is ‘most likely’ for the next rate hike. These followed comments from the Fed’s Williams on Friday which noted an economy in good shape at (essentially) full employment as he spoke of it making sense to hike sooner rather than later. Data last week included September inflation numbers which showed rising headline inflation and a slight easing in core inflation to 2.2% y/y. Jobless claims remained low and existing home sales, the leading index and industrial production all registered gains. Housing starts fell sharply in September, although the fall related to volatile starts in multi-dwelling buildings. Permits to build new homes and strong home builder conditions indicate solid housing activity ahead. In focus this week will be tonight’s consumer confidence, new home sales (Wednesday), durable goods on Thursday and Q3 GDP on Friday (amongst other releases).

Europe

Dominating focus last week was Thursday’s ECB meeting which saw the ECB leave monetary policy on hold. President Draghi’s comments were mostly dovish and appeared to pave the way for an extension of QE and widening of asset purchases at the December meeting. Data last week started with numbers on the euro zone inflation which lifted 0.4% year-on-year, well short of the near 2% ECB policy target. The  August euro zone current account surplus expanded against expectations of a contraction. German producer prices fell 1.4% from September 2015 (-1.2% exp.) as low energy prices continued to drive. The ECB’s September quarter bank survey showed strong across the board demand for loans. This week has started with flash PMI’s across the euro zone and Germany which all rose and exceeded expectations. Focus for today will be on the German IFO business climate indicators, whilst later in the week we get various consumer/business confidence reads and regional inflation prints.

United Kingdom

Last week was a busy one for key data in the UK. Releases included numbers on inflation, employment and retail, although the sterling had one it’s quieter weeks of recent time which saw it rise moderately against the greenback overall. The data started with numbers on inflation which rose by the most in two years year-on year. The number of jobless claims rose by less than expected and unemployment held steady at 4.9%. Data from the retail sector was weaker than expected, although weather likely played a role. Data released this week started with yesterday’s CBI industrial trends orders numbers which fell sharply in October. The worse than expected result was the weakest level seen since February. In focus this week will be BBA mortgage approvals, talk from BoE Governor Carney tomorrow, and third quarter GDP data on Thursday.

Japan

Interest is again light in the Yen in trade this week after better than expected trade and manufacturing data yesterday failed to ignite traders from their slumber. The trade surplus for September beat expectations on the back of a smaller than expected decline in exports for the month, although exports have now fallen year-on-year for 12 months in a row in part due to the recent strength of the Yen. The flash Markit Manufacturing PMI registered its fastest rate of expansion in nine months. Data last week included industrial production numbers which failed to rise by the degree expected and capacity utilization which lifted by 2.6% in August. Focus for the balance of this week will be on Friday’s data which includes numbers on employment, inflation and household spending although none is expected to create more than a passing interest.

Canada

The Canadian dollar has begun the week poorly this week on the back of news overnight that the Belgian government could not sign the EU-Canada free trade treaty due to opposition from regional governments. Last week was dominated by the BoC monetary policy decision which saw the Canadian central banks leave rates on hold as expected, although issue a more dovish than expected assessment of the economy. Data releases were dominated by Friday’s inflation and retail numbers. Both sets of data underwhelmed after inflation rose just 1.3% year-on-year (1.5% exp., in a large part due to food inflation which was the lowest since February 2000) and retail sales fell marginally in August against expectations of a 0.3% rise. Manufacturing sales for August provided the only bright point after it beat expectations, although gained no market traction. Expect a quiet week this week with no data of note so look to whether the EU-Canada trade deal can get across the line and energy markets for direction.

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Ian Dobbs is a currency analyst with Direct FX You can contact him here »