US Dollar strength was the theme closing the week out on a high as markets retreated on risk sentiment; travelling below 0.6600 to 0.6590 the NZDUSD cross look vulnerable for further downside; NZDAUD at 0.9130

NZD/USD

The New Zealand Dollar (NZD) has reacted to the NZ Institute of Business Confidence this morning and taken the currency to fresh near term low against the US Dollar (USD). Travelling below 0.6600 to 0.6590 the cross look vulnerable for further downside. Continuing its bearish decline from 0.7400 we think a retest this week of the low of 0.6500 could be reachable. Economic headlines of note this week is the US Non-Farm Payroll numbers leading with the ADP figures tomorrow night. Comments recently from the RBNZ suggested no change in the OCR rate would eventuate until 2019/2020 but ANZ have suggested the next cut could be down. If this is the case, we may see the NZD under further pressures significantly undermining the forecasted cycle low.

NZD/AUD (AUD/NZD)

NZ Institute of business Confidence printed below market expectations to -30 this morning bouncing the Aussie higher to 0.9130 (1.0945). The significant aspect of the Business confidence figure is that it’s the lowest reading since 2009 and coincidentally correlates to the end of a 9 year term in power with the Labour government. The three month range formation is still 0.9040 (1.1065) on the downside to 0.9225 (1.0840) and looks to hold for a while longer. Today’s RBA announcement should highlight more of the same rhetoric with another Global Dairy Auction overnight. NZ dairy interests will be crossing their fingers on a positive result given the last three have been negative.

NZD/GBP (GBP/NZD)

The New Zealand Dollar (NZD), British Pound tracked to a new low of 0.5040 (1.9850) overnight on better than expected UK Manufacturing data. The third quarter figures showed an improvement in Manufacturing to 53.8 vs 52.6 expected with output and new orders gaining traction. The current levels are reasonably attractive for sellers of Pounds given the recent extent of the shift from the high of 0.5980 (1.6710) with the cross trading around the 0.5380 (1.8600) area at the start of 2018. We still have a long way to travel back to 0.4570 (2.1850), pre-referendum Brexit levels with Brexit holding the only long term key to Pound success. Later in the week PMI releases.

 NZD/CAD

As the news a replacement trade deal between the US, Mexico and Canada had been agreed the New Zealand Dollar (NZD) plunged against the Canadian Dollar (CAD) to its lowest level of 0.8470 since October 2015. It’s definitely Canada’s week with the currency receiving a massive boost with a new trade contract great news for Canadian people. Crude oil prices have surged to over 75.00 per barrel the highest level since November 2014 with sanctions on Iran beginning to diminish the countries oil supplies while the new USMCA deal eased demand concerns. Canadian employment data releases Saturday, if the numbers are positive we could see a retest of 0.8350

NZD/EURO (EURO/NZD)

Concerns in the Eurozone’s Italy linger and have made for a choppy New Zealand Dollar (NZD), Euro (EUR). With Italy’s budget issues making markets nervous the pair has traded to a high of 0.5720 (1.7480) from early week lows of 0.5680 (1.7600) with direction at this point tough to pick. Initially German Retail Sales shocked the Euro sending it lower along with Tuesday’s NZIER business confidence falling short of expectations. Wednesday sees a German bank holiday, if nothing changes with Italy’s situation we could see weekly lows retested.

NZD/YEN

The New Zealand Dollar (NZD) is trading at the 7 week high of 75.40 against the Japanese Yen (JPY) after coming off a mid September low of 72.30. Monday’s Japanese Tanken Index showed a less buoyant Manufacturing sector pushing the Kiwi higher confirming the break of the bearish channel which has held for some time. The pairs movement over the remainder of the week will be guided by offshore trade developments.

AUD/USD

Aussie holiday Monday has seen light trading conditions the Australian Dollar (AUD) not moving far from its open of 0.7220 against the US Dollar (USD). Today’s RBA announcement shouldn’t offer up any surprises to markets with the cash rate expected to remain at 1.50% and comments confirming forecasted growth of just above 3.0% over 2018  and 2019. US trade talks with China remain elevated with headlines having the ability to shift market sentiment investors remain cautious. We expect the bearish trendline from late September to continue with price action to go below 0.7200 in the short term. Buyers of USD should have already considered levels above 0.7200 being the smart move.

AUD/GBP (GBP/AUD) 

Monday’s UK Manufacturing figures gave the Pound (GBP) an early boost against the Australian Dollar trading to (AUD) to 0.5510 (1.8150) but soon retraced back to the weekly open of 0.5543 (1.8040) Today’s RBA cash rate announcement will be watched closely but no surprises are expected in the statement. Friday’s Australian Retail Sales will be monitored closely after last month’s numbers were well down.

AUD/EURO (EURO/AUD)

The Australian Dollar (AUD) has started the week on a good footing against the Euro (EUR) pushing higher to 0.6250 (1.6010). Italy’s budget issues have spooked buyers of the EUR and may remain nervous until the final Italian budget is submitted on the 15th of October 2018. Today’s Australian RBA meeting shouldn’t throw up any surprises with the cash rate remaining at 1.5% and the same rhetoric discussed. The pair has broken past four week resistance Tuesday, the Aussie should continue to enjoy further support through to 0.6270 (1.5950)

AUD/YEN

The recent lack of Japanese Yen (JPY) support continues this week against the Australia Dollar (AUD) as the pair pushes further north from the low of 78.40 mid September to 82.40. Except for a short stink to 82.50 last week this represents the continuation of a new bullish trend channel for the Aussie. Today’s RBA could push the pair higher with a retest of 82.80 if any surprises eventuate from the monetary statement.  Bad weather is also affecting Yen price action with Typhoon Trami touching down on the mainland forcing thousands of people to be evacuated. Evacuation is on standby for an additional 3.7 million people.

AUD/CAD

The Canadian Dollar (CAD) is on top of the world this week after a trade deal with the US government has been reached. The AUD/CAD cross gapped lower on the weekly open after speculation a new NAFTA replacement deal was close to being negotiated. Once news broke and Trump made the official announcement, the pair travelled down to 0.9230. Crude oil prices have surged to over 75.00 per barrel the highest level since November 2014 with sanctions on Iran beginning to diminish the countries oil supplies while the new USMCA deal eased demand concerns.

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Market commentary:

US Dollar strength was the theme closing the week out on a high as markets retreated on risk sentiment. Equity markets were flat as the Italian Budget drama continues. Italy has defended its massive budget deficit with Italian equities trading down over 4% as the uneasiness over budget levels continues. The coalition government proposed a 2019 deficit of 2.4% of (GDP) Gross Domestic Product, Italy's economic Minister Giovanni Tria defended it declaring that Rome was not a challenge to Europe after he said the debt levels will decrease over time. Economic growth over the next two years will be stemmed by investments Tria went on to say. China celebrate "National Day" all week which usually implies the markets could be a little less liquid producing increased volatility in currencies. Trump's "good friend" Xi - (China President) may not be a good friend any more after Trump accused Xi of meddling in the US congressional elections in November. As the two countries impose fresh tariffs on each other the world’s largest economies will get together to avoid a drawn out trade war which dampen global growth. President Trump has threatened to slap tariffs on just about the total of all Chinese imports with China remaining staunch.

US equity index the Nasdaq traded back into the negative after a Facebook security breach has apparently affected 50 Million accounts. The Nasdaq fall 3.4% on the news. Tesla shares have also taken a dive following on from the SEC suit against CEO Elon Musk with the price down nearly 12% Typhoon Trami is bearing down on Western parts of Japan as 100 mph winds have hit the mainland with 3.7 Million people on the evacuation plan. Tokyo is not in the path of the storm but very strong winds have been reported with trains and over 1000 flights being cancelled.

US and Canadian officials have agreed on a new trade deal, Trump has called it USMCA (United States, Mexico, Canada) which replaces the old NAFTA trade deal. It sounds like Trump has won out on his hard ball negotiating tactics putting other world leaders, European Union, China and Japan on notice. The deal needs to be approved by congress before it comes into play on January 1 2020. The Canadian Dollar strengthened across the board against the G10 currencies reaching a 4 month (31 July 2018) high against the greenback. Price action in the NZD/AUD will be subdued this week with a lack of economic data on the docket and a Aussie bank holiday (labour day) Monday.

Australia

The Australian Dollar has made decent gains over the past three weeks which is a tad surprising given the level of risk averse sentiment in markets based on trade tensions. Only recent GDP and employment numbers have really held the currency from dropping further. Friday saw these gains level off - against the US Dollar it traded to a high of 0.7310 before falling away over the Fed rate announcement. Given that Australia has substantial interest in economic and political ties with both countries it only seems right that we should see a weaker AUD. With the Fed raising rates last week to 2.25% the gulf between the two countries in terms of interest rate and investment potential will only get larger with the Fed expecting to raise rates again an expected three times next year and once more in 2018. With a light economic calendar over the coming couple of weeks we may see the Aussie drift lower. Today's RBA announcement is not expected to throw up any fresh AUD buying interest with the cash rate to remain at 1.50%

New Zealand

Who forgot to wind their clocks forward and came into work an hour later on Monday? I'm switching off my Spa pool and cleaning up my BBQ in anticipation for much better weather. According to NIWA we have a 35% chance (for all NZ regions) that rainfall will be below normal levels now through to the end of November. I know this doesn't actually tell us much but reports are that we have a 65% chance of seeing another El Nino over the coming months but not temperatures to the extent of last summer.  Last week the RBNZ governor left the cash rate unchanged at 1.75% as widely expected but made comment that the next change could be "up or down" with the rate to remain unchanged well into 2019. A quiet week on the cards for the kiwi with NZIER (Economic Research) today the main event. Pending trade tensions will have the biggest impact on the New Zealand Dollar this week with further downside expected to resume.

United States

Personal income and spending were generally in line with market expectations both rising 0.3% for August m/m. Recent data suggests growth and the economy is expanding at a solid rate. US Dollar momentum trucks on reaching the highest level since mid November 2017 of 113.90 against the Japanese Yen. Notes from lasts weeks FED rate rise to 2.25% suggested the overall economy is strong with solid labour market inflation just above 2.0%. The Fed sees 3% GDP this year with unemployment under 3.5% next year. Fed members could not agree on where a neutral monetary policy was in terms of rate rises, so they may just keep hiking rates until new reasons appear for them not to continue. This week all important Non-Farm Payroll figure offers a welcome break from recent trade headlines with actual "economic data" to perhaps shift markets from recent ranges. US Manufacturing data and Fed chair Powell speaks later in the week.

Europe

The Euro has been left scrambling in the wash of uncertainty over the Italian budget. The events which have unfolded have bought about a broad based Euro decline. Italian officials have been forced to defend its plans to run a huge government deficit as fears the economy would be plunged into despair. The five star movement and the right wing league proposed a 2019 deficit of 2.4% of GDP which is three times the previous administrations target. In attempts to calm fears the economic minister Tria said economic growth in Italy would be boosted by offshore investment of the next two years. Given the recent casualness of the ECB’s on Italy previously we will see further market nervousness continue until the final Italian budget is submitted on the 15th of October.  The Euro is trading at 1.1570 against the US Dollar by far the weakest currency this week. It’s a quiet week of data in the Eurozone with a German holiday Wednesday.

United Kingdom

Confusion with brexit remains with both conservative and the opposition labour party consider the possibility of a snap decision as early as November 2018. The chances of a second referendum would be a disastrous outcome in the event of a "no deal" after the UK negotiations with the EU. A second vote still remains unlikely but it may be the only way to avoid a "hard" brexit. There still seems to many options to outline with a real divide still evident. Theresa May is preparing to make a critical speech at a party conference, amid speculation of a pending challenge to her leadership by Boris Johnson. The Party is split between - backing a hard brexit, remaining and those in the middle. Purchasers Managers Index (PMI) prints Wednesday and is expected to be in line with positive August numbers.

Japan

The Bank of Japan's Tanken Manufacturing Index survey report for the third quarter 2018 (July to September) was released Monday and showed a lower than expected figure of 19 based on the Bank of Japan's predicted 22. The report is aimed at assessing business confidence in manufacturing. The bank of Japan made comment global trade tensions are not having a big impact on sentiment but could affect at a later date with raw material costs to blame along with bad weather and natural disasters impacting. Large manufacturers see the USD/JPY trading down to 107.50 this financial year currently its trading around 113.70. Japanese consumer confidence index releases tonight and is expected to be in line with market predictions of 43.0. US Dollar sentiment will be the main driver of the pair this week along with US Non-Farm Payroll Friday.

Canada

We have a new trade deal, Trump is calling it USMCA. President Trump administration’s new trade deal between Canada and Mexico has been agreed and leaves much of the old North American Free Trade Agreement (NAFTA) as it was. Essentially the key differences are in the Auto and dairy industries. The new agreement which has been negotiated intensely over the past year between the three countries includes many compromises by both the US and Canadian officials. The US has gained access to Canadian dairy a huge win for US dairy producers. Canada has won the right to keep in place a disputes resolution process. The Canadian Foreign minister Freeland is calling the deal a victory for Canadians. The US accounts for over 75% of all Canada exports and will pave the way for tariff free access to the American market. The Canadian Dollar gaped lower Monday on market confidence, trading down to 1.2840 versus the US Dollar the strongest performer early week and continued its run over the G10 currencies after news broke. Employment data later in the week and trade balance will be key to the Canadian Dollar staying under the pivotal 1.30 level. Crude Oil was sharply higher up over 75.00 again breaking resistance above 73.00 suggesting we may see higher prices develop in the near term.

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