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The New Zealand Dollar (NZD) recovered losses against the US Dollar (USD) as the week got underway back to 0.6170 from 0.6115- greenback weakness evident. Waning commodity prices, poor Chinese industrial data and global sentiment may continue to weigh down the currency. We see a strong probability the Federal Reserve will hike again at the late July meeting despite reasonable chances the economy could drop into recession. The Fed still adamant they need the inflation target at 2.0%. Our technical chart indicators suggest the kiwi bias is to the downside for the next while.

Current Level: 0.6163
Resistance: 0.6300
Support: 0.6040
Last Weeks Range: 0.6115-0.6236

Wednesday June 28
12:30am CAD CPI m/m
Forecast 0.50%
Previous 0.70%
12:30am CAD Median CPI y/y
Forecast 4.00%
Previous 4.20%
12:30am CAD Trimmed CPI y/y
Forecast 4.00%
Previous 4.20%
2:00am USD CB Consumer Confidence
Forecast 104
Previous 102.3
1:30pm AUD CPI y/y
Previous 6.80% Read more

Key Points:

NZ May credit card spending +3.3% compared with expectations of +13.9%, recession taking a hold.
Chinese Lifong was out on the wires yesterday talking up the Chinese economy- “the economy has recovered and turned for the better” – hmmm.
Yellen has said the chances of a Eurozone recession has eased but risk remain.
The Bank of England hikes interest rates 50 points to 5.00% with predictions of two more to come.
Japan’s economy is recovering at a moderate pace with employment improving and business activity on the rise.
The Euro (EUR) has been the strongest performer this week with the Australian Dollar (AUD) the worst performer.

The English Pound (GBP) climbed to 2.0630 this morning against the New Zealand Dollar (NZD) after the Bank of England hiked their base interest rate 50 points to 5.00% in a surprise move after markets were mostly expecting a rise to 4.75%. The central bank is more aggressive as efforts ramp up to curb massive inflation issues. This is the highest interest rate since 2008 with thoughts around the BoE now facing prospects of having to nudge the economy into recession later in the year to contain rising prices. Earlier UK inflation came in hot at 8.7% year on year after 8.4% was predicted, an unchanged shock result. This is clearly not the number the Bank of England were hoping for, the result beating out lower expectations the 4th month in a row. Further rises by the central bank- perhaps 2 more in August/September are now more than likely. A retest of the low at 0.4820 (2.0750) looks the most likely scenario in the coming hours/days, a push through here and the next target is 0.4670 (2.14) the low of March 2020 and the infamous day of the Brexit vote in June 2016.

The current interbank midrate is: NZDGBP 0.4855 GBPNZD 2.0597
The interbank range this week has been: NZDGBP 0.4820- 0.4878 GBPNZD 2.0497- 2.0746

The Australian Dollar (AUD) continued its run lower against the US Dollar (USD) as the week progressed clocking 0.6745 this morning as risk conditions soured. Dovish RBA minutes and poor data out of China weakened the AUD weighing on global sentiment. Fed’s Powell testified saying they have quite a way to go to bring down inflation but are making progress. He also suggested the economic recovery from the covid pandemic has been the strongest among the developed countries. They will likely raise rates in the coming months after holding steady last week, the downside is they may see a sharper than anticipated slowdown which could threaten a recession. Looking ahead we have Australian CPI y/y Thursday.

The current interbank midrate is: AUDUSD 0.6764
The interbank range this week has been: AUDUSD 0.6739- 0.6882

This more aggressive Bank of England (BoE) interest rate release sent the Australian Dollar (AUD) back to 0.5290 (1.8900) this morning extending recent GBP moves to a two-week low. The central bank hiked 50 points to 5.0% as they move to try and bring down soaring inflation. Earlier UK inflation came in above expectation at 8.7% year on year after 8.4% was forecast, an unchanged shock result. This is a real problem for the Bank of England, the result beating out lower expectations the 4th month in a row. Further interest rate rises by the central bank in August/September are now likely. The carry trade is likely to be more evident and GBP supportive. Next week’s docket is thin with just Australian CPI y/y releasing, anything north of 6.8% may boost the AUD.

The current interbank midrate is: AUDGBP 0.5307 GBPAUD 1.8843
The interbank range this week has been: AUDGBP 0.5291- 0.5380 GBPAUD 1.8587- 1.8897

The New Zealand Dollar (NZD) held its ground surprisingly recovering recent losses against the Australian Dollar (AUD) on its way to a peak at 0.9175 (1.0900). Chinese economic outlook put the Aussie under pressure as well as a less hawkish RBA. The central bank said the rate increase a week ago was finely balanced based on pressures in rising wage growth. Inflation risks are still slanted to the upside with the door open for further hikes. Next week’s Australian CPI y/y will give us more clues on where the cross is headed, anything larger than the current 6.8% may improve the AUD.

The current interbank midrate is: NZDAUD 0.9147 AUDNZD 1.0925
The interbank range this week has been: NZDAUD 0.9048- 0.9170 AUDNZD 1.0904- 1.1051

Big Dollar strength has been the theme over the week with the New Zealand (NZD) drifting lower Friday to 0.6170 levels. We did see 0.6220 midweek after Westpac NZ consumer confidence released better than expected with second quarter data rising to 83.1 from 77.7 previously, however this is still well below the average. Also, of note- Powell’s testimony weakened the USD after saying inflation remains sticky and could rise further. Markets are predicting only 1 further hike from the Fed, but the Fed has two planned. Two hikes we believe would almost certainly put the US economy into recession. Chinese Outlook soured markets Thursday taking equity markets lower and the kiwi with it. The kiwi is looking soft, keeping above 0.6000 will require effort.

The current interbank midrate is: NZDUSD 0.6189
The interbank range this week has been: NZDUSD 0.6133- 0.6237

The Australian Dollar (AUD) was the strongest currency last week against the main board but made no move against the Euro (EUR). Perhaps consolidating after a massive two weeks of gains. Bouncing around the 0.6275 (1.5940) for most of the week from 0.6055 (1.6520) in late May. Villeroy didn’t help the Euro after he made dovish comments saying that inflation had peaked and the ECB may not hike further. With the recent slide in US equities, we may see the EUR pick up ground this week and stage a reversal of sorts towards 0.6210 (1.6100), this will mostly hinge on Eurozone manufacturing data late in the week.

Current Level: 0.6271 (1.5946)
Resistance: 0.6300 (1.6200)
Support: 0.6170 (1.5880)
Last Weeks Range: 0.6252-0.6309 (1.5848-1.5993)

The British Pound (GBP) ground out gains Monday off the open to extend last week’s mini rally against the Australian Dollar (AUD) to 0.5335 (1.8750). The GBP improved from the recent hawkish tone from the BoE and rate hike predictions. Recent wage data and claimant change has firmed the rate hike outlook. Profit taking post last week’s “risk rises” has been evident with the AUD falling back a tad as equities have also eased form recent highs. This week’s y/y UK CPI and official cash rate announcement is the main ticket. Interest rates are expected to be raised from 4.50% to 4.75% as they fight to conquer rising inflation. Momentum we think is to the downside in the cross this week.

Current Level: 0.5352 (1.8684)
Resistance: 0.5420 (1.9180)
Support: 0.5215 (1.8440)
Last Weeks Range: 0.5348-0.5405 (1.8499-1.8698)