The Opening Bell: Where currencies start on Friday, October 27, 2017

By Dan Bell

The NZDUSD opens at 0.6837 (mid-rate) this morning.

The Kiwi has fallen from Monday’s high of 0.6990 to trade a 155 point range or 2.2% this week, and opens a couple of points above the overnight, and week low of 0.6835.

Where to from here? The May 10th, 2017 low was 0.6814 and beyond that the low of 30th May 2016 of 0.6671 is the next major support. Technically the Kiwi is heavily oversold in the charts and has moved a long way from the 10 and 20 moving day averages. On that basis we could expect a short term bounce as a retracement in the downtrend to 0.6950 or even 0.7000.

Fundamentally we have seen a shift from the broad 0.7000 – 0.7400 range and over the medium term a new range of 0.6600 to 0.7000 will become the new norm. Importers will look to take cover on short term moves higher above 0.6900. Exporters will continue to buy on dips, targeting new lows at sub 0.6850 levels. The looming Fed rate hike in December will continue to see a stronger USD and therefore a weaker NZD in the medium term.

The Governing Council of the ECB announced overnight that the interest rates on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.

The ECB cut QE purchase volumes in half to 30 billion euros a month starting in January 2018. The preliminary end date was moved forward from December 2017 to September 2018. Purchases could be increased temporarily if needed, and the end date might be moved even further into the future if needed. Draghi also said that purchases won’t end abruptly. That suggests QE will be extended beyond September next year, with purchases probably gradually tapered to zero.

In the week ending October 21, the advance figure for seasonally adjusted U.S. Initial Claims was 233,000, an increase of 10,000 from the previous week’s revised level. The previous week’s level was revised up by 1k from 222k to 223k. The 4-week moving average was 239.5k. Claims taking procedures continue to be severely disrupted in Puerto Rico and the Virgin Islands as a result of power outages and infrastructure damage caused by Hurricanes Irma and Maria.

Tonight’s major data releases are the Advanced GDP and GDP Price Index for the U.S. and revised University of Michigan Consumer Sentiment and Inflation Expectations. Sunday sees the U.K. and most European Countries end Daylight Savings including Switzerland by moving their clocks back one hour. Event calendars will then update timings accordingly.

Global equity markets are higher: Dow +0.38%, S&P 500 +0.26%, FTSE +0.53%, DAX +1.39%, CAC +1.50%, Nikkei +0.15%, Shanghai +0.31%.

Gold prices are down $9 or 0.7% trading at $1,267 an ounce. WTI Crude Oil prices are up another 1.0% overnight currently sitting at $52.58 a barrel.

Current indicative rates:

NZDUSD    0.6837     -0.5%
NZDEUR    0.5862      0.8%
NZDGBP    0.5195      0.3%
NZDJPY      77.92      -0.2%
NZDAUD    0.8915     -0.1%
NZDCAD    0.8804      0.0%
GBPNZD    1.9238     -0.3%


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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here »

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