|Trend:||Flat to bearish|
|Support 1:||83.20 (current week low)|
|Support 2:||82.68 (61.8% Fibo retracement level)|
|Support 3:||82.06 (previous week low)|
|Resistance 1:||83.45 (current day high)|
|Resistance 2:||83.68 (July high)|
|Resistance 3:||84.53 (June high)|
The AUD is reporting moderate losses after the RBA minutes showed the policymakers do not see a strong case for a near-term move in interest rates.
The minutes also talked about household debt risk, slow wage growth and downside risks to the global economy from trade tensions, all indicating that the interest rates will likely stay at a record low of 1.5 percent for some time.
Hence, the currency pair risks falling below 0.74. At press time, the AUD/USD pair is trading at 0.7404, having clocked a session high of 0.7421 earlier today.
The AUD/USD created a small doji candle yesterday, signaling indecision in the marketplace. A close today below the Doji candle low of 0.7409 would expose the recent low of 0.7310. On the other hand, a close today above 0.7442 would signal a continuation of the recovery from the recent low of 0.7310.
AUD/USD Technical Levels
Resistance: 0.7442 (previous day's high), 0.7484 (50-day moving average), 0.7589 (100-day moving average).
Support: 0.7360 (July 12 low), 0.7310 (July 2 low), 0.7194 (Jan 2017 low).
The Reserve Bank of Australia (RBA) has dropped the latest release of the central bank's Meeting Minutes, and the RBA has maintained their steady policy stance of waiting for further economic improvement within Australia, while they continue to middle on their calls for the next rate hike, which the RBA says is "likely up"; the normal risks were also outlined, with the RBA focusing on still-sluggish wage growth, and household debt levels that remain at peak levels.
"Members commenced their discussion of the domestic economy by noting that GDP growth had picked up to be 3.1 per cent over the year to the March quarter, which was above estimates of trend growth. The quarterly growth rate of 1 per cent had been a little stronger than the Bank's forecast of three months earlier. Non-farm GDP had increased by 3.6 per cent over the year to the March quarter, while growth in domestic final demand had continued its upward trend since 2013.
Members observed that, compared with the average of the preceding 20 years, growth in household income had remained subdued over the most recent couple of years, with growth in all components of income remaining below average.
Turning to the housing market, members noted that data from the national accounts suggested dwelling investment had peaked in late 2016, although residential construction cycles had differed significantly across the states.
In the labour market, employment growth had moderated from the very strong rates recorded in 2017 and the participation rate had declined a little from its recent peak. Members noted that most of the jobs created over the preceding year had been in the private sector. Much of the strength in employment growth over recent years had been in the health and social assistance industry, where about three-quarters of people work in the private sector.
Members held a detailed discussion of the high level of household debt in Australia, informed by a special paper prepared for this meeting. Household debt has increased by more than household income over the preceding three decades in many countries, but particularly so in Australia. Two key drivers of this trend across countries have been the decline in nominal interest rates, predominantly reflecting lower inflation, and financial deregulation, both of which have increased households' access to finance. Members noted that a distinguishing feature of the Australian housing market is that the bulk of dwellings are owned by the household sector. This has contributed to greater borrowing for housing by households in Australia compared with other countries, where the corporate sector owns a larger proportion of rental properties."
According to analysts at ANZ, the Chinese Yuan and other Asian currencies are being hit by the worsening trade tensions between the US and China, and the bank suggests that the gap between the USD and CNY is due to close, but only if trade tensions are relaxed.
"The escalation of trade tensions between the US and China have been behind the more recent weakening in Asian currencies.
Our models suggest that the Malaysian Ringgit is the most under-valued currency based on an average of the PPP (Purchasing Power Parity) and BEER (Behavioural Equilibrium Exchange Rate) bases … Following the recent sell-off, the Chinese yuan is the next most under-valued currency in the region, with average fair value at around 6.00.
In aggregate, the misalignment for USD/Asia as a whole is close to a level that has tended to signal that a turnaround may be around the corner. Hence, even if trade tensions show no sign of easing anytime soon, the extent of further Asian currency weakness may be limited from here.
(The USD/CNY sees) average fair value at around 6.00. However, with trade tensions hanging over the currency, the valuation gap is unlikely to close anytime soon.
The People's Bank of China (PBOC) set the Yuan reference rate at 6.6821 vs the previous day's fix of 6.6758.
USD/JPY is currently testing the upside in Tokyo, with bulls reluctant to completely throw in the towel just yet in what seems to be an overstretch position in the pair. USD/JPY is trading at 112.44 with a high of 112.45 and a low of 112.25 as the dollar remains investor's preferred hedge in the current climate.
USD/JPY fell back from 112.50 to 112.10 on the day while markets paused in the advance, despite a positive revision to the key US retails sales data. As for US yields, the US 10yr treasury yields climbed from 2.83% to 2.88% while the 2yr yields rose from 2.58% to 2.61%. The Fed fund futures yields continue to price in 1 ½ more hikes for 2018. The DXY was trading between a range of 94.4080-94.7740 where the dollar pulled back as the session went by, ending NY at 94.6920.
We have yet further key events this week
We have yet further key events this week, including Powell's two-day testimony, US IP and the Beige Book. Meanwhile, the enactment of the US/China tariffs could put the breaks on in the bulls advance and eyes can turn back to 111.33-54 as the key downside support level.
Valeria Bednarik, chief analyst at FXStreet explained that the 4 hours chart shows that the price remains well above bullish 100 and 200 SMA, while technical indicators eased:
"The RSI heading lower around 59 and the Momentum turning higher right after entering negative territory, all of which suggest that the pair can correct lower, particularly on a break below 112.15 the immediate support. Nevertheless, the pair is far from bearish and a decline could be short-lived if buyers decide to add on dips. The key to the downside is the 111.40 level, as only below it, bulls will likely give up."
Morgan Stanley (MS) analysts largely expect the USD to wind up on the weak side heading into the next 12 months, and their USD-short stance shows in their projection ranges heading towards 2019's third quarter
MS sees the USD/JPY between 88.00 - 101.00, while the EUR/USD is expected to hit between 1.18 and 1.30, with the Sterling forecast between 1.32 and 1.50, while the AUD/USD is expected somewhere between 0.67 and 0.75 within the next 12 months.
USD/JPY Chart, 15-Minute
|Trend:||Flat to bearish|
|Support 1:||112.00 (major technical level)|
|Support 2:||111.53 (61.8% Fibo retracement level)|
|Support 3:||110.76 (July 11th swing low)|
|Resistance 1:||112.44 (current day high)|
|Resistance 2:||112.55 (current week high)|
|Resistance 3:||112.79 (previous week high)|
Analysts at Nomura offered their model's outlook for today's fix.
"Our model1 projects the fix to be 68 pips higher than the previous fix (6.6826 from 6.6758) and 12 pips lower than the previous official spot USD/CNY close of 6.6838. The basket implied change is 14 pips lower than the previous official spot USD/CNY close (6.6824 from 6.6838)."
RBA Meeting Minutes overview
The Reserve Bank of Australia (RBA) will be publishing the Meeting Minutes of their latest meetings at 01:30 GMT. The RBA has been striking a dovish tone recently, striking warnings about an overvalued AUD in recent minutes, as well as repeated dovish showing from the RBA's Governor, Philip Lowe. Market expectations have been set in the basement for the RBA, with traders confident that the central bank will be keeping in-line with their current position which sees the RBA holding off on interest rate increases until some time in 2019.
How could it affect the AUD/USD?
Traders are bracing for another dovish showing from the Australian central bank, and as FXStreet's own Valeria Bednarik noted, "the central bank also expressed its concerns about global trade woes that can affect local economic growth, so investors are heading into the event expecting a dovish stance. Meanwhile, the pair maintains a short-term neutral stance, as in the 4 hours chart, is trading above directionless 20 and 100 SMA, while below a slightly bearish 200 SMA, as technical indicators erased their early gains and hover now around their midlines."
Support levels: 0.7400 0.7370 0.7330
Resistance levels: 0.7450 0.7490 0.7520
AUD/USD analysis: waiting for dovish RBA Meeting's Minutes
AUD/USD continuing to hold above 0.74 ahead of the RBA's Meeting Minutes
About the RBA Meeting Minutes
The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.
FX today was pretty tame to start the week in European and NY markets. There was little in the way of political catalysts although PM May was seen bowing to Brexiteers in Parliament and Trump/Putin's summit headlines kept popping up but had no material effect on the FX space.
As analysts at Westpac noted, "The Trump Putin press conference drew criticism both from Democrats and Republicans, with John McCain stating that Trump's performance in Helsinki showed that the summit had been a "tragic mistake"". However, it was as if traders literally turned the TV's off in dealing rooms, ignoring the Russian allegations of meddling with the US elections noise. As far as Brexit headlines, the amendments to the Taxation (Cross-Border Trade) Bill a four-part amendment passed with government support, a win for the Brexiteers.
Meanwhile, US data came through and was met with bulls buying up the dollar on the back of impressive revisions to the retails sales headline that came in line with expectations at 0.5%; ( however, the control group sales miss held up the advance). The DXY was trading between a range of 94.4080-94.7740 where the dollar pulled back as the session went by, ending NY at 94.6920. As for US yields, the US 10yr treasury yields climbed from 2.83% to 2.88% while the 2yr yields rose from 2.58% to 2.61%. The Fed fund futures yields continue to price in 1 ½ more hikes for 2018.
EUR/USD climbed from 1.1700 to 1.1725, maintaining most of the day's gain in NY hours. There are options traders at play here keeping the pair in check while risk reversals favour a lower price. Meanwhile, the market is now focused on Fed Chief Powell's congressional testimony on Tuesday and traders are on the lookout for any concerns over trade issues that could send out a more dovish signal than what has been on tap of late. Sterling was offered to 1.3223 on the back of PM May accepting the changes to the customs bill, seen as a less soft Brexit proposal by the market, which is negative for the pound. At the same time, the divergent views on Brexit sets up possible leadership test, which is also a weight on the pound. Brexit once again trumps the rate hike trade but this week will be critical for the cross with EZ inflation and indeed a daily slew of UK data to keep traders on their toes. EUR/GBP was higher on the Brexit risk, trading between a day's range of 0.8816/53, ending the day at 0.8850 and closing up by +0.24%. USD/JPY dropped from 112.50 to 112.10 while markets pause on the bid with the yen oversold ahead of key events this week, including Powell's two-day testimony, US IP and the Beige Book. At the same time, the enactment of the US/China tariffs puts the anchor down on the bulls advance and bears can look back to the 111.33-54 key downside familiar levels. As for the higher betas, US stocks, for the best pat and bar the Dow, finished in the red, and the Aussie/Kiwi were unable to hold onto their gains while commodities struggle, weighing on the antipodeans, especially copper. Copper has been a huge weight on the Aussie, with a steep decline that commenced in June, capping the Aussie's attempt of a break out of the rising channel's resistance on the daily chart at 0.7680. AUD/USD dropped from the day's 0.7443 high, made a low of 0.7410 and closed at 0.7419. The Kiwi fell from 0.6793 to 0.6765.
Key events in the US:
Analysts at Westpac offered their outlook for the day's key events ahead:
"In Australia we have the RBA July meeting minutes. The focus will be on any clarity around the ‘other factors’ the Bank believes are driving short-term domestic funding rates. At the July 3 policy meeting, the RBA noted that "it remains to be seen the extent to which these factors persist". Clearly, financial conditions have continued tightening so any colour on "other factors" will be welcome as will comments on likely impacts on the housing market and consumer. In the US Fed Chair Powell delivers his semi-annual testimony to the Senate Banking Committee. May TIC flows are released and will be of greater interest going forward due to the escalation in the US and China trade dispute and how this may affect treasury holdings in the future."
As reported by Reuters, US President Donald Trump is being lambasted by US lawmakers from both sides of the line after Trump failed to confront Russian President Vladimir Putin over Russian election meddling, which recently saw 12 Russian nationals indicted. President Trump chose to side with Putin on the meddling accusations, with Trump stating that he saw no reason to believe his own country's intelligence agencies.
"A wave of condemnation immediately followed, with lawmakers calling Republican Trump “weak” and “cowardly,” while Senator John McCain said the summit was “a tragic mistake.” The war hero and former Republican presidential nominee, a frequent critic of the president, said Trump “failed to defend all that makes us who we are - a republic of free people dedicated to the cause of liberty at home and abroad.”
Director of National Intelligence Dan Coats, a Republican and a Trump appointee, in an unusual statement responding to Trump’s remarks, stood by the U.S. agencies. “We have been clear in our assessments of Russian meddling in the 2016 election and their ongoing, pervasive efforts to undermine our democracy,” Coats said. On his way home, Trump insisted in a post on Twitter that he has “GREAT confidence in MY intelligence people.”
U.S. House of Representatives Speaker Paul Ryan, the top Republican in Congress, said Russia undoubtedly interfered in the 2016 election. “The president must appreciate that Russia is not our ally. There is no moral equivalence between the United States and Russia, which remains hostile to our most basic values and ideals,” said Ryan in a statement.
Senate Majority Leader Mitch McConnell, a Republican, told reporters: “I’ve said a number of times and I’ll say it again. The Russians are not our friends and I entirely believe the assessment of our intelligence community.” Trump’s eagerness to improve U.S. relations with Russia had been met with skepticism in Congress, where lawmakers nearly unanimously approved tough sanctions targeting Moscow in 2017. Senate Foreign Relations Committee Chairman Bob Corker, a Republican, said Trump’s comments next to Putin made the United States look like a “pushover.”
Republican Senator Lindsey Graham said the summit was a “missed opportunity by President Trump to firmly hold Russia accountable for 2016 meddling and deliver a strong warning. “This answer by President Trump will be seen by Russia as a sign of weakness and create far more problems than it solves.” Senator Susan Collins said Trump’s “position is untenable,” while Senate Intelligence Committee Chairman Richard Burr, also a Republican, outlined Russian aggression on several fronts and said the United States “will not tolerate hostile Russian activities against us or our allies.”
Both Senate and House Democratic leaders Chuck Schumer and Nancy Pelosi went so far as to hint that Trump’s behavior might be explained by Putin possibly having some embarrassing information about Trump. “For the president of the United States to side with President Putin against American law enforcement, American defense officials, and American intelligence agencies is thoughtless, dangerous, and weak,” Schumer said."
NZD/USD dropped circa 10 pips on the NZ Q2 CPI data that arrived at 0.4% and slightly lower than the 0.5% expected. The bird, however, was bid back up to the 5minute MAs, sending it back into its sideways drift between 0.6764 and 0.6779, (New York session's range).
NZD/USD started out yesterday's session on the front foot from 0.6725 to late London highs today of 0.6792. However, US data and yields were on the up which underpinned demand for the greenback and knocked the bird off of its perch down to 0.6764 and ahead of today's CPI numbers. The year on year data arrived as 1.5 % vs the
expected 1.6% y/y and prior 1.1%. Non-tradeable prices arrived as 0.4% q/q vs the tradeables 0.3% q/q. We now await the Reserve Bank of New Zealand 's own inflation measure today at 0300GMT. Either way, the RBNZ is not expected to raise rates until Autumn in 2019. We will also get the RBA minutes today.
More on RBA minuest and Aussie in general that here:
AUD/USD: bulls hang in there while bears look for a test below 0.7400 ahead of RBA minutes
Technicals remains the same on that data: A deeper support comes as 0.6720 and resistance is located at 0.6860 (21-D SMA 0.6817). 0.6785 is where the 10-D SMA is located and bears are looking for closes below there to confirm a continuation of the downside and back into the bearish channel. 0.6920, however, would put the bulls back in control and the June highs will be up for grabs. However, bulls really need to get above the 200-month moving average resistance at 0.7007 to stave off bearish pressures.
The New Zealand CPI came in below expectations, with the y/y CPI printing at 1.5% versus the expected 1.6% (last 1.1%), while the quarterly inflation reading came in at just 0.4% against the forecast 0.5%. The inflation readings missed broad-market forecasts, but came in very close to the Reserve Bank of New Zealand's own in-house expectations, helping to put a floor under a bearish fall.
"The largest contributor to inflation was higher prices for housing and household utilities, up 0.9 percent this quarter, and 3.1 percent in the year to June 2018.
“New Zealanders are paying more to keep their homes running,” prices senior manager Paul Pascoe said. “Rates, property maintenance services, and home insurance are all higher than they were this time last year.” Higher premiums, fire service, and earthquake levies across the year all contributed to an 18 percent increase in dwelling insurance in the June 2018 year.
Petrol prices rose 3.2 percent in the June 2018 quarter, but this was countered by lower prices for used cars and home entertainment. Used car prices fell 3.3 percent, while subscriber TV and audio-visual equipment fell 7.2 percent and 15 percent, respectively.
“It was cheaper to buy a used car this quarter as dealerships looked to move some stock, but that was offset by higher running costs,” Mr Pascoe said. “With implementation of the regional fuel tax on 1 July, Auckland consumers will experience higher prices next quarter.”
The national average price for a litre of 91 octane reached $2.06 in June 2018, with price movements varying across the regions. Wellington and the South Island had significantly higher inflation than Auckland and the rest of the North Island."
The AUD/USD is continuing to trade flat into Tuesday's action after middling through Monday's market session, twisting just above the 0.7400 major level.
Aussie traders shuffled their feet to open the new trading week, keeping the AUD/USD trapped near Friday's highs on the bullish side of 0.7400, but a lack of meaningful data ahead of the Reserve Bank of Australia's (RBA) latest meeting minutes.
Early Tuesday sees the RBA's latest release of the central bank's Meeting Minutes, due at 01:30 GMT, though broader markets are already bracing for a dovish showing from the RBA. Recent public showings from the RBA's Governor Lowe have been on the cautious side, and broader markets have largely priced in a disappointing showing from the RBA, which is broadly expected to keep standing pat on interest rates well into 2019.
AUD/USD Levels to watch
Technical indicators are grappling with a sluggish AUD/USD, and key chart readings show a growing sense of indecision surrounding the pair, and as FXStreet's own Valeria Bednarik noted, "meanwhile, the pair maintains a short-term neutral stance, as in the 4 hours chart, is trading above directionless 20 and 100 SMA, while below a slightly bearish 200 SMA, as technical indicators erased their early gains and hover now around their midlines."
Support levels: 0.7400 0.7370 0.7330
Resistance levels: 0.7450 0.7490 0.7520
Global markets saw only modest movements though US bond yields are slightly higher following solid retail sales data.
"There were only minor movements only in FX, bond and equity markets overnight as the Trump/ Putin summit dominated headlines. US equities and the US dollar finish the session slightly lower, while US bond yields are slightly higher following solid retail sales data. Oil fell 4% on Saudi Arabian supply."
"The US dollar index is down 0.2% on the day. EUR rose from 1.1700 to 1.1725. USD/JPY fell from 112.50 to 112.10. AUD round-tripped from 0.7410 to 0.7442 and back. NZD similarly rose from 0.6770 to 0.6793 before slipping back to 0.6765. AUD/NZD fell from 1.0970 to 1.0940."
"US retail sales rose 0.5% in June as expected, while the core measure – ex-auto and fuel - rose 0.3% (vs +0.4% expected) and the control group only 0.0% (vs 0.4% expected). However there were large upward revisions to the May numbers, suggesting strong retail activity for Q2. Business inventories rose 0.4% in May, as expected. NY Fed’s Empire survey of business activity of 22.6 did not pullback as much as expected (21.0) from the surge to 25.0 seen in June. Both new orders and shipments dipped in July suggesting some softening in activity in Q3."
"The Trump Putin press conference drew criticism both from Democrats and Republicans, with John McCain stating that Trump's performance in Helsinki showed that the summit had been a "tragic mistake"."
"The IMF warned that the current trade tensions between the US and its major trading partners "is the greatest near-term threat to global growth"."
"US 10yr treasury yields rose from 2.83% to 2.88%, helped by solid retail sales data, and 2yr yields rose from 2.58% to 2.61%. Fed fund futures yields continued to price 1 ½ more hikes in 2018."
Analysts at Westpac explained that other than squaring up a modest short EUR position the model is content to stick with most of the same core bets that have been in place in recent weeks, namely; long USD and JPY, short AUD and NZD and long CAD.
"Last week we observed that the high USD is not yet a serious headwind to either growth or inflation and as a result shouldn’t encounter any meaningful resistance from US policymakers.
A quick stock take of some other key metrics confirms that while there may be some short term vulnerabilities - mainly positioning and a mature cycle of US data outperformance - the underlying uptrend appears to be intact.
1) Outright yield, and linked to that, valuation remain the key plusses. As the slide over shows despite the USD’s 6% appreciation since mid-April it remains well shy of levels implied by yield spreads.
2) A broad model that incorporates relative growth, relative budget balances and the US’ terms of trade in addition to yield spreads confirms that the USD has valuation on its side. As of end-Q2 the USD index remains around 10% below equilibrium (see slide two).
3) On the cautionary side; global growth conditions remain somewhat negative USD. Admittedly there is still some caution about the Eurozone outlook; a handful of PMIs have stabilised but underlying momentum lacks the vigor of 2017. Weaker China imports, IP and credit have also raised doubts about growth momentum in China too. Against that the OECD leading indicator still overall points to continued global expansion, albeit modestly (see slide three). The USD tends to trade inversely with global growth and as such there is a limit to upside potential as long global growth continues to firm.
Our US data surprise index has begun to normalise from unsustainable highs too. As slide four shows investor exposure to the USD loosely tracks the broad cycles in our US data surprise index and if anything looks vulnerable given our surprise index has begun to track lower."
Analysts at Nomura previewed the next key data coming up from the US.
"Industrial production: We forecast a robust 0.9% m-o-m gain in industrial production in June (Consensus: 0.5%) after a 0.1% decline in May. June industrial production was likely boosted heavily by auto assemblies. In May, a fire at a parts supply factory disrupted auto production."
"Industry forecasts after seasonal adjustment suggest that automakers likely ramped up their production in June. That said, it is possible for auto production to revert to trend in July after an idiosyncratic jump in June. Excluding autos, we expect industrial production to rebound in June by around 0.4% m-o-m after a 0.2% decline in May."
"The expected recovery would be consistent with our view that a sudden slowdown in May was likely transitory. Incoming business surveys suggest that business activity expanded at a steady pace, driven by healthy domestic demand, despite elevated trade uncertainties."
"We expect June industrial production data to reflect this trend. In addition, mining sector output likely contributed solidly to total industrial production. Crude oil and liquid gas extraction has been on an upward trajectory, mostly driven by the shale oil sector. Elevated oil prices will likely remain supportive of mining sector output in the near term."
The UK government has voted on, and passed, an amendment bill to the latest Brexit strategy proposed by Prime Minister Theresa May, and the details of the amendment may make it harder for the UK to negotiate an easy split from the EU.
No customs border for Northern Ireland.
No fast track capacity to create a new customs union.
The UK will be forced to leave the VAT regime.
Limited capacity for the EU to collect tariff revenue without reciprocity.
NZ CPI overview
The latest New Zealand CPI reading, slated for late Monday at 22:45 GMT, sees market forecasts anticipating an improvement in the long-term figures, but some slack in the most recent quarters, with the y/y Consumer Price Index expected to print at 1.6% (previous 1.1%), and the q/q reading for 2018's second quarter to clock in at 0.5%, remaining in-line with the previous quarter's figure.
Price growth continues to flub below the Reserve Bank of New Zealand's (RBNZ) desired targets, and with inflation continuing to struggle to post modest increases over time, the RBNZ is widely expected to remain frozen on rates until well into 2019, and any CPI readings coming in below expectations could hamper bulls' efforts significantly, as further-deflating inflation readings would only push the RBNZ further out on the time horizon.
Today's Q2 CPI reading could carry a bit more weight than normal, as noted by analysts at ANZ: "however, today’s release for Q2 has more interest than normal. That is in part because of the point we are in the economic cycle (where growth momentum looks to be slowing, and the implications that has for the inflation outlook), partly because the RBNZ shifted a little more dovish last month, and partly because there is a wide variety of views on what the figures will show (the Bloomberg consensus has a large range of 0.1% to 0.7% for quarterly headline inflation)."
How could it affect the NZD/USD?
There is a chance that bearish pressure has alleviated from the Kiwi for the time being, as noted by FXStreet's own Eren Sengezer: "the RSI indicator on the daily chart rose toward the 50 mark, suggesting that the bearish momentum is losing strength. On the upside, the initial resistance for the pair aligns at 0.6795/0.6800 (daily high/20-DMA/psychological level), 0.6855 (Jul. 9 high) and 0.6895/0.6900 (50-DMA/psychological level). Supports could be seen at 0.6750 (Jul. 15 low), 0.6685 (Jul. 2 low) and 0.6600 (psychological level)."
However, a bearish reading for the NZ CPI would be unwelcome by Kiwi bulls, and the NZD/USD's core price action will be driven by whether or not inflation is continuing to inch towards the RBNZ's targets.
NZD/USD bulls sitting pretty above bearish channel's resistance ahead of CPI
NZD/USD Forex Signal
About the NZ CPI
Consumer Price Index released by the Statistics New Zealand is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services . The purchase power of NZD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the NZD, while a low reading is seen as negative.
Analysts at ANZ explained that CPI releases often generate plenty of interest; it is a major piece of economic data after all.
"However, today’s release for Q2 has more interest than normal. That is in part because of the point we are in the economic cycle (where growth momentum looks to be slowing, and the implications that has for the inflation outlook), partly because the RBNZ shifted a little more dovish last month, and partly because there is a wide variety of views on what the figures will show (the Bloomberg consensus has a large range of 0.1% to 0.7% for quarterly headline inflation)."
"And ANZ is the outlier in that range, where we see the risks skewed towards a soft outcome (we expect a 0.1% q/q lift). While we can’t speak for others, one of the rationales behind our expectation is the soft signal provided by our Monthly Inflation Gauge, which at face value pointed to a fall in non-tradables prices in the quarter. We haven’t gone as aggressively as that, but it has still dominated out thinking. Certainly a result in line with our views would see the market further entertain the idea of an RBNZ rate cut and leave the NZD on the defensive, even though market positioning remains extremely short."
Analysts at TD Securities explained that the market sentiment was mixed overnight.
"US indices largely unchanged (SPX: -0.1%, Dow: +0.2) while Canadian equities underperformed amid a pullback in crude oil prices (WTI: -4.0%, Brent: -4.4%) on concerns over potential supply increases. USTs bear-steepened on a 3bp selloff in the long-end while Canadian rates were little changed to outperform."
"The USD started the week on the back foot despite the tailwind from a solid retail sales report."
"GBP (+0.1%) saw intraday gains trimmed after the UK Government accepted amendments from hard-line Brexiters to its Trade and Customs Bill while CAD (+0.1%) and EUR (+0.2%) saw little reaction to a WTO challenge of retaliatory tariffs by the US."
"RBA minutes and Chairman Powell's testimony are Tuesday's main risk events."
EUR/USD 15-minute chart
Spot rate: 1.1710
Relative change: 0.23%
Resistance 1: 1.1730-1.1740 area, 23.6% Fibonacci retracement from mid-April-May bear move and last week’s open.
Resistance 2: 1.1790 last week’s high
Resistance 3: 1.1851-1.1854 area, June high and 38.2% Fibonacci retracement from mid-April-May bear move
Support 1: 1.1700 figure
Support 2: 1.1672 June 27 high
Support 3: 1.1640-1.1649 area, key level and July 12 low
Support 4: 1.1613 current weekly low
Support 5: 1.1600 figure
Support 6: 1.1560 June 14 low
Support 7: 1.1508 current 2018 low
EUR/USD daily chart
NZD/USD has stabilising above the descending channel's prior resistance with a test of the 10-D SMA at 0.6785 having made a high of 0.6793 and a low of 0.6758. The greenback, however, was edging higher into the key data today and capped the pair at the 200-hr SMA, (0.6793).
However, analysts at ANZ explained that a weaker USD was the dominant theme overnight, seeing the NZD grind a little higher. "Direction today will no doubt be determined by the local CPI figures, which if ANZ is correct, should see the NZD testing support again. Any in-line or upside surprise could result in a decent squeeze higher," the analysts added.
Traders are looking for a positive outcome, whereby inflation on an annual term for a lift to 1.6% as a market consensus for Q2, on the way to 2% by year-end, likely to be driven by oil prices, firming domestic capacity pressures and a recent softening in the bird, (dollar fulled). However, where the market will be convinced that the RBNA will wish to act on such an outcome is another matter which, will ultimately be the driver of the Kiwi where core prices will remain below the RBNZ's midpoint of the inflation target. The RBNA is not expected to raise rates until Autumn in 2019.
A deeper support comes as 0.6720 and resistance is located at 0.6860 (21-D SMA 0.6817). 0.6785 is where the 10-D SMA is located and bears are looking for closes below there to confirm a continuation of the downside and back into the bearish channel. 0.6920, however, would put the bulls back in control and the June highs will be up for grabs. However, bulls really need to get above the 200-month moving average resistance at 0.7007 to stave off bearish pressures.
Data source: FX Street
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