Risk appetite dampened following terrorist attacks; heavy trading in EUR continues; NZ Q3 retail sales report has had little impact on NZD

By Ian Dobbs*:

The USD continues to be in vogue in recent trade despite a miss on Friday in the U.S. October retail sales release (+0.2% m/m vs. +0.4 % exp.).

Terror events over the weekend have dominated media headlines and have perhaps contributed to some of the dollar’s strength as the market seeks the safe-haven status of the USD.

The EUR continues to trade heavily. It is near lows not seen since April as the market continues to re-price the case for additional monetary policy accommodation at the December ECB meeting.

Friday’s lower than expected Eurozone Q3 GDP number only adds to the argument. U.S. and U.K. inflation data tonight along with the FOMC minutes and BOJ monetary policy meeting on Thursday will dominate the landscape for the remainder of the week.

Major Announcements last week:

  • China inflation (Oct. -0.3% m/m vs -0.2% exp.)

  • China Industrial Production (Oct. +5.6% y/y vs. +5.8% exp.)

  • UK ILO Unemployment rate 5.3% vs 5.4% exp.

  • Australian Unemployment rate (Oct. 5.9% vs. 6.2% exp.)

  • Australian Employment change (Oct. +58.6k vs. +15.0 k exp.)

  • Euro-zone Q3 GDP +0.3% q/q vs. +0.4% exp.

  • US Retail Sales (Oct. +0.2% m/m vs. +0.4% exp.)

  • US University of Michigan Consumer Confidence +93.1 vs. 91.5 exp.

NZD/USD

Better than expected NZ retail sales data released yesterday did little to dampen the weak sentiment seen towards the NZD. The weekend’s terror attacks dampened risk appetite, although the falls in the local currency have so far been limited to ~.6470. Tonight’s GDT dairy release will be the next critical mover of the currency, expectations are for another soft result presently. A much better than expected result may see the NZD challenge selling which is likely to reside in the .6570/90 region, especially if the USD is subjected to some profit taking over coming days. Selling rallies is still favoured overall for now.

DIRECT FX Current level Support Resistance Last wk range
NZD / USD 0.6476 0.6450 0.6590 0.6471 – 0.6587

NZD/AUD (AUD/NZD)

The New Zealand dollar remains weak against the Australian dollar having failed to make much ground since last Thursday’s strong Australian October employment report. With the RBA minutes this afternoon likely to have little impact on this cross it is up to tonight’s GDT dairy auction to help arrest the NZD decline this week. Current pricing indicates another weak auction therefore current indications point to this move extending to around .9100 (1.0990) in the near term.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9132 0.9100 0.9215 0.9119 – 0.9318
AUD / NZD 1.0951 1.0850 1.0990 1.0732 – 1.0967

NZD/GBP (GBP/NZD)

The New Zealand dollar continues to ease against the U.K. pound this week as the NZD eases on the back of heightened uncertainty after the weekend’s terror attacks in France. Tonight’s U.K. inflation data and NZ GDT dairy auction will be important drivers of the next move in this cross. This NZD looks heavy for now and U.K. inflation expectations are modest for tonight’s release. This may allow the GBP to rally further should inflation expectations surprise to the upside.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.4263 0.4200 0.4315 0.4259 – 0.4343
GBP / NZD 2.3458 2.3810 2.3175 2.3027 – 2.3481

 NZD/CAD

The New Zealand dollar continues to drift against the Canadian dollar in recent trade. The results of tonight’s GDT dairy auction and general risk sentiment will be critical to whether the recent lateral trading ensues. Investors will also be closely watching energy markets, especially given the current heightened geopolitical tensions. We lack any real bias as to the direction of the next move, although for now the NZD downside appears more vulnerable.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.8642 0.8615 0.8750 0.8626 – 0.8755

NZD/EURO (EURO/NZD)

The New Zealand dollar trades towards the middle of recent ranges against the Euro presently. This comes after moderate declines in both the NZD (risk-off) and EUR (expected ECB easing) over recent days. We continue to favour more sideways drifting in this cross while .6035 (1.6570) holds, although marginally favour selling rallies towards .6120 (buy dips to 1.6340). Immediate focus for this cross is tonight’s GDT dairy auction.

DIRECT FX Current level Support Resistance Last wk range
NZD / EUR 0.6063 0.6035 0.6120 0.6033 – 0.6133
EUR / NZD 1.6493 1.6340 1.6570 1.6304 – 1.6576

NZD/YEN

The New Zealand dollar has drifted lower against the Japanese Yen over the last few days as investors have favoured the safe-haven Yen over the NZD since the weekend’s terror attacks. We continue to favour selling rallies in this environment. Key events for the cross this week are tonight’s GDT dairy auction and the BOJ monetary policy meeting on Thursday. The addition of further stimulus at this meeting would help to arrest the pairs current decline.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 79.95 79.25 81.00 79.64 – 80.94

AUD/USD

The Australian dollar has drifted in recent days after initially rallying after last Thursday’s strong Australian October employment report. Resistance around .7160 capped the bounce on Friday after the release of a weaker than expected U.S. retail sales report. Souring risk sentiment and demand for USD’s post the weekend’s terror attacks has placed the AUD under some pressure ahead of tonight’s U.S. inflation report. Thursday’s FOMC minutes will be the next key driver of this pair this week.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.7105 0.7000 0.7160 0.7017 – 0.7157

AUD/GBP (GBP/AUD)                            

The Australian dollar has been well contained against the U.K. pound since our last report after a lack of key data out of both countries. Tonight’s U.K. inflation data and Thursday’s U.K. retail sales report should help drive this cross. Market risk appetite should also be watched given the heightened geopolitical concerns currently at play. We lack any bias on this cross during the week and expect it to remain within recent ranges, although the current momentum points to marginally lower AUD levels ahead.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.4673 0.4630 0.4740 0.4636 – 0.4705
GBP / AUD 2.1400 2.1097 2.1598 2.1252 – 2.1572

AUD/EURO (EURO/AUD)

The Australian dollar continues to trade firmly against the Euro today, although sits off its recent .6670 highs (1.4993) seen after the recent strong Australian employment data release. We favour the AUD upside momentum to continue while the market remains focussed on potential easing at the 3rd of December ECB meeting. This will likely continue to see the market selling EUR/USD rallies over the next two weeks.

DIRECT FX Current level Support Resistance Last wk range
AUD / EUR 0.6648 0.6520 0.6670 0.6547 – 0.6670
EUR / AUD 1.5042 1.4993 1.5337 1.4992 – 1.5273

AUD/YEN

The Australian dollar has remained within recent ranges since our last report despite yesterday’s weak Japanese Q3 GDP data release. This has played out in part because of increased uncertainty after the weekend’s terror attacks. Key focus for this pairing this week will be Thursdays BOJ monetary policy meeting. We marginally favour the upside for now, although risks to this view centre on the BOJ meeting and any unforeseen uptick in risk uncertainty.

DIRECT FX Current level Support Resistance Last wk range
AUD / YEN 87.57 86.50 88.00 86.47 – 87.95

AUD/CAD

The Australian dollar has remained well contained against the Canadian dollar since our last report. Canadian data due for release on Friday and energy market developments will be key for this cross this week. Albeit wider market risk sentiment should also be noted. We lack any bias for now and expect the cross to be well contained heading into Friday’s Canadian data. Current momentum is for a lower AUD. Key support is at the .9300 level.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 0.9465 0.9300 0.9580 0.9314 – 0.9504

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Market commentary:

The USD continues to be in vogue in recent trade despite a miss on Friday in the U.S. October retail sales release (+0.2% m/m vs. +0.4 % exp.). Terror events over the weekend have dominated media headlines and have perhaps contributed to some of the dollar’s strength as the market seeks the safe-haven status of the USD. The EUR continues to trade heavily. It is near lows not seen since April as the market continues to re-price the case for additional monetary policy accommodation at the December ECB meeting. Friday’s lower than expected Eurozone Q3 GDP number only adds to the argument. U.S. and U.K. inflation data tonight along with the FOMC minutes and BOJ monetary policy meeting on Thursday will dominate the landscape for the remainder of the week.

Australia

Today’s RBA minutes are the only event out of Australia of any note this week, although little new information is expected after the recent RBA statement on monetary policy. The AUD has outperformed many of its peers after last week’s solid October employment report saw the unemployment rate fall to 5.9%, with 40k full-time jobs added in the month. Low impact new motor vehicle sales for October released yesterday fell 3.6% m/m from +5.9% the month prior. The weekend’s terror events have seen the markets seek safety in US dollars. Direction for the AUD for the remainder of the week will be dictated by risk sentiment and the key U.S. data flow which includes tonight’s inflation report and Fed monetary policy meeting minutes on Thursday morning.

New Zealand

The weekend’s terror events and falling equity bourses on Friday have seen the NZD slide at the start of the week as investors sought safety in USD’s. Yesterday’s NZ Q3 retail sales report has done little to change the momentum after it rose 1.6% in the quarter, better than the 1.3% expectations. The core number (ex-autos and fuel) rose a more modest 1.0% (1.4% exp.) however. Focus for the week now turns to tonight’s latest Fonterra GDT dairy auction where prices look set for a third consecutive decline. The local data calendar for the rest of the week lack’s punch, this will see offshore events/risk sentiment and data take central stage, the key U.S. releases are tonight’s inflation report and the FOMC minutes on Thursday morning.

United States

The USD has continued to advance this week as the market sought to buy dollars after the weekend’s terror attacks in France and Beirut. Data released on Friday was dominated by the weaker than expected U.S. retail sales report for October which posted a 0.2% m/m gain, half the 0.4% rise expected. Core producer prices were seen falling 0.3% m/m for the month against the +0.1% forecast. The brightest note was the University of Michigan consumer confidence release which beat forecasts rising to 93.1 against the 91.5 forecast (90.0 prior). The improvements were seen in both the current conditions and expectations series. Inflation expectations 5-10 yrs out stabilised at 2.5%, although remain at their lowest levels since 2002. Focus will now turn to October inflation and industrial production data due for release tonight. Adding to interest are various Fed officials are also due to speak. The FOMC minutes will be of primary interest on Thursday morning, building permit and housing start numbers will feature the same day. The week is rounded out with weekly employment data and the Philly Fed manufacturing index on Friday.

Europe

The Euro trades heavily near its lows last seen in April currently as the market continues to re-weight the case for further monetary policy accommodation from the ECB at its December meeting. Preliminary Euro area Q3 GDP data released on Friday added to the case after it climbed just 0.3% q/q and 1.6% y/y, against the 0.4% and 1.7% expectations. The growth was supported by a modest increase in consumer spending and reasonable momentum in exports. European core inflation data released overnight was seen marginally beating expectations after it climbed 1.1% y/y in October against the 1% rise expected. Focus will now turn to tonight’s German and euro area ZEW economic confidence data, before a speech by ECB president Draghi scheduled for Friday.

United Kingdom

It has been a quiet start to the week for the GBP as the market waits for tonight’s inflation and Thursday’s retail sales reports. Yesterday saw the release of the low impact Rightmove House price index. This posted a fall of 1.3% m/m in November against the +0.5% expectations (0.6% prior),  and further house price data is due for release tonight. Expectations for this week’s inflation and retail sales releases are low and may leave the GBP open to a further rally, a rally which gathered momentum after last week’s solid U.K. Q3 labour market data which saw the unemployment rate reaching near seven year lows (5.3%).

Japan

Data released yesterday showed Japan falling into a recession for the second time since late 2012. The GDP was seen declining by an annualized 0.8% in the 3 months ended Sept. 30, much worse than the -0.2% fall predicted. Weakness in business investment and shrinking inventories drove the contraction, as company spending and production faces pressure from slow growth in China and a weak global outlook. The release could place additional pressure on the BOJ to boost fiscal and monetary stimulus at this Thursday’s BOJ meeting. However, key to this will be whether yesterday’s report has had any impact on the BOJ officials outlook for the improving trend in inflation.  Industrial output released on Friday advanced 1.1% in September (1.0% exp.), although it failed to make up for the contractions seen in July and August. The safe haven status of the JPY will also be important this week given the recent offshore events.

Canada

A sharp rally overnight in oil prices from their lows seen near $40 (WTI) yesterday has helped the CAD recover from its lows. This came after it temporarily experienced a minor rally on the back of a weaker than expected U.S. retail sales report on Friday. The market will continue to focus on energy market developments this week, especially given the heightened geopolitical tensions seen in Syria after the weekend’s terror attacks. Canadian retail sales and inflation data due for release on Friday will also be watched in what is likely to otherwise be a quiet week.

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