Post-Trump gains in USD total over 6%; focus on OPEC and commodity currencies; expect volatility in oil price

An easing in the overall level of the US dollar has helped the New Zealand dollar gain in trade against the greenback since our report on Friday. Local influence lacked last week and this is again expected to be the case this week. Look to the US data for direction and the outcome of the OPEC oil producer meeting for influence on commodity and commodity currency sentiment. Initial levels to watch are around .7030 on the downside and .7100/05 on the topside. Strong support should again be seen below 70c in the .6950/70 region should the US dollar reignite.

NZD/AUD (AUD/NZD)

The New Zealand dollar is trading largely unchanged against the Australian dollar since our report on Friday. With little to go on in the way of fresh influence ranges have been understandably contained in recent hours (~.9425-.9490/1.0537-1.0610).This week is looking likely to be another week of relatively contained trade given the data calendar due, although the OPEC result could see volatility pick-up. We lack any bias overall which points investors towards taking advantage of the extremes in the above range to cover their needs.

NZD/GBP (GBP/NZD)

The New Zealand dollar has lifted in trade against the UK pound since our last report. Much of the move has come in recent hours on the back of last night’s decline in the GBP, although a pick-up in the commodity currencies this week has also helped. Data looks unlikely to have a heavy influence on trade this week, although the UK PMI indicators later in the week should have a degree of influence if they miss expectations by a margin. Look to the OPEC meeting result later in the week for influence on commodity currency sentiment. Momentum at the moment is mildly NZ dollar positive.

 NZD/CAD

The New Zealand dollar has lifted in trade against the Canadian dollar since our report on Friday, although gains have reduced notably in trade overnight. Last night’s move reflects the lift in the CAD on gains in the price of oil. Moves in this cross are expected to be sudden and will be closely tied to the response of the price of oil (and CAD) to the outcome of the OPEC oil producer meeting which begins tomorrow. We lack any view given the considerable uncertainty around the outcome of this meeting. More notable support/resistance is eyed at .9300 and .9670.

NZD/EURO (EURO/NZD)

The New Zealand dollar has posted moderate gains against the Euro since our report on Friday. The move reflects the move up in the NZD which has benefitted from general commodity currency strength (especially gains in the AUD). We expect commodity movements and appetite for the commodity currencies in the wake of the OPEC decision later in week to have the strongest influence on the cross this week. Momentum for now is mildly supportive of further NZD gains.

NZD/YEN

The New Zealand dollar has eased in trade against the Japanese Yen since our commentary on Friday. The fall from highs seen ahead of 79.80 have come mainly on the back of the rebound in the Yen against the greenback in trade so far this week. Movements in the USD/JPY exchange rate look most likely to drive trade this week, although an eye should be kept on any shift in appetite for commodity currencies after the OPEC decision (although the CAD will be the most affected). We are wary of a further slide given the present correction the USD/JPY.

AUD/USD

The Australian dollar has gained in trade against the US dollar since our report on Friday. The move reflects the move lower in the overall level of the greenback and observed strength in the key commodity currencies overnight. US data and appetite for the commodity currencies in the wake of the OPEC meeting decision will be the key drivers for the pair this week. We expect gains beyond the broad .7525/.7580 zone to be difficult to come by this week given the demand for the USD. Support below .7440 is seen around .7360/65.

AUD/GBP (GBP/AUD) 

The Australian dollar has continued to rise in trade against the UK pound since our report on Friday. The move reflects the overnight fall in the GBP and gains in the AUD (key commodity currencies gained) in an environment of a weaker US dollar. Commodity currency appeal looks likely to be a driver of trade later in the week after the OPEC decision (the meeting convenes tomorrow). UK PMI indicators will also be watched. Current momentum is AUD positive, although the uncertainty around the OPEC outcome makes calling the next shift difficult.

AUD/EURO (EURO/AUD)

The Australian dollar has lifted moderately in trade against the Euro since our report on Friday. Much of the move reflects the increased appetite for the AUD (partly helped by commodity currency appeal overnight), although yesterday’s reversal (lower) in the Euro has also contributed. Momentum for the cross is AUD positive at the moment, although much will depend on the outcome of the OPEC oil producer meeting result later in the week which looks likely to drive the commodity currencies in the days after.

AUD/YEN

The Australian dollar has eased against the Japanese Yen since our commentary on Friday. The move reflects the recent (relatively minor) recovery in trade this week of the Yen against the US dollar. Moves in the USD/JPY exchange rate and appetite for the commodity currencies in the wake of the OPEC meeting outcome look likely to drive trade in the cross this week. We are unsure of the next move from here, although momentum over the last two months has been AUD positive.

AUD/CAD

The Australian dollar has continued to firm in trade against the Canadian dollar since our report on Friday. The move reflects the continued strength and relative outperformance of the AUD in an environment of an overall weaker US dollar this week. Look to the outcome of the pivotal OPEC decision on oil production caps to dictate the next large shift in the cross this week (the meeting convenes tomorrow). Initial resistance is seen in the 1.0100/25 zone, whilst first support is seen at last week’s lows (.9860). Expect levels to offer little in the way of opposition to the OPEC induced volatility.

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Market commentary:

This week is set to be a very interesting one again for the US dollar given the busy data schedule due. Gains in the greenback post the Trump US election win which totalled over 6% at one stage last week have eased this week ahead of a busy data wrap which includes Q3 GDP (today), ISM manufacturing on Thursday and Nonfarm payrolls employment on Friday. Commodity currencies will also be heavily in focus this week, particularly so the CAD as the OPEC oil producers meet in Vienna tomorrow for their much awaited official meeting to agree a production cap limit and individual country production quotas. An agreement (or lack of) looks set to usher in a period of considerable oil price volatility over the weeks ahead. Expect the volatility to flow through to the key oil country currencies like the CAD and NOK when the results become known later in the week.

Australia

Last week was largely uneventful for data of note out of Australia. Gains for much of the week were helped by an improvement in the price of many commodities key to Australia. Data released during the week included September quarter construction activity numbers which fell by more than expected and contributed to a year-on-year drop in construction output of over 11%. Consumer confidence eased in the latest week according to the ANZ/Roy Morgan survey. Assistant RBA Governor Kent presented a relatively upbeat view on the economic outlook which echoed that of Governor Lowe the week prior. In focus this week are numbers on new home sales, building approvals and private sector credit (loans outstanding) tomorrow. On Thursday we have numbers on home prices and private capital expenditure/business investment which will be followed by retail sales on Friday. A keen eye should also be kept on the outcome of the OPEC oil producer meeting which will conclude towards the end of the week.

New Zealand

Last week was a relatively quiet week for important incoming data. Core retail sales for the third quarter disappointed by rising just 0.3% q/q versus the 1.1% forecast. Migration data showed the number of incoming migrants reaching fresh highs of over 70k in the latest year. Rising exports helped the October trade balance improve, although the marginally better than expected deficit for the month had no impact on trade. Some profit taking on the greenback has helped the kiwi lift slightly in trade so far this week. US dollar sentiment looks likely to again drive trade during the week, although the outcome of the OPEC oil producer meeting could incite volatility in the commodity linked currencies. Local events to watch are mainly tomorrow and include building consents, ANZ business confidence and a speech from RBNZ Governor Wheeler. Expect Thursday’s terms of trade data to create little more than a passing interest.

United States

US economic data releases remained solid again last week. Stronger than expected data included results from the Markit Nanufacturing Conditions PMI, consumer sentiment, existing home sales and durable goods orders. Underperformance was observed in the goods trade balance, the services PMI and new home sales, although these releases were low ranking and gained no market traction. The Fed minutes affirmed that rates will rise next month (barring a financial calamity) and that risks to the near-term economic outlook were evenly balanced. Focus this week starts with Q3 GDP and consumer confidence today. Key indicators later in the week include the ISM manufacturing PMI on Thursday and Nonfarm payrolls employment on Friday where expectations are for a gain of around 175k jobs in November.

Europe

It was a relatively quiet week for data in Europe last week. Euro zone business condition PMIs lifted further in November to levels which are consistent with a pick-up in GDP growth to around 2%. The German IFO was unchanged and German GDP growth slowed to half of that seen in the quarter prior. Consumer confidence rose to -6.1 from -8 and was the strongest reading since December last year. Interest remains high around this weekend’s constitutional reform referendum in Italy which could lead to early elections and a rise in support for the populist Five Star Movement (a party which has pledged to have a referendum on whether Italy should remain in the euro area). Reports from the Financial Times indicate that up to eight banks might fail due to an inability to refinance if the PM loses the referendum. Data of interest this week includes various business and consumer climate indicators, regional inflation/GDP reads, euro zone inflation and manufacturing PMI indicators.

United Kingdom

The sterling has started the week on a poor footing after falling in trade overnight (despite a weak US dollar) on the back of comments from the BoE which reiterated that it would look past the first round inflation impacts from the GBP depreciation. Comments from ECB President Draghi that the UK would suffer first if protectionist policies were introduced with the Brexit also weighed on sentiment. Last week contained little data of interest outside of Friday’s revised Q3 GDP report. The 0.5% q/q result was in line with the preliminary estimate (and expectations) and included gains in exports and better than expected business investment numbers which points to a BoE that will keep interest rates on hold. Other data included the CBI industrial trend and distributive trades surveys which both outperformed expectations. Consumer credit expanded at rates near 10-year highs and mortgage approvals lifted to five month highs. This week’s focus includes today’s mortgage and credit data, nationwide house prices and the BoE Financial Stability Report (tomorrow). Manufacturing and construction PMI indicators are due on Thursday and Friday respectively.

Japan

Last week was a relatively quiet one for local influences of note in Japan. This saw the yen continue its recent trend of losses against the US dollar which accelerated after the Trump US election win, although news of a vote recount in 3 key battleground US states has seen the USD/JPY ease in trade this week. Data released in Japan last week included the manufacturing PMI indicator which dipped slightly in November, although current levels still remain above those seen in the middle of the year. Inflation lifted, although the core level remained very weak at just 0.2% year-on-year. Trade numbers released on Monday were mildly disappointing as exports deteriorated. Data this week started with numbers on household spending today which underperformed expectations in October and unemployment which remained steady at 3%. Industrial production will be released tomorrow although expect US dollar sentiment to dictate.

Canada

This week in Canada will be all about the outcome of the OPEC oil producer meeting in Vienna which is scheduled to conclude on November 30. Considerable volatility in oil pricing is expected after the announcement. This has oil bulls hoping for a move to cap output around 32.5 million barrels per day (bpd) versus the current 33.64 million bpd output. Details of individual country quotas were also promised to be finalized at the meeting. Canadian data released last week includes underwhelming wholesale sale numbers and on consensus retail sales for September. Economic data scheduled for release this week starts with current account data today. GDP and raw material/industrial product prices are due tomorrow and will be followed by employment numbers on Friday. Manufacturing PMI data on Thursday will be of little interest.

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