Today we are looking to buy AUDNZD from current market price or on a pullback to 1.0850-1.0800 area. AUDNZD buying opportunities occurs on the back of positive AUD GDP and speculation of rate cuts from RBNZ. Conviction level is 6/10 for market entry and 7.5/10 for an entry in the low 1.08s.
In yesterday’s NY session we saw significant broad USD weakness. EURUSD rallied on the back of a potential Greek resolution.
The highlight of today’s Asian session was Gross Domestic Product from Australia which came out at 0.9% versus 0.7% expected – the fastest growth in a year. This prompted an immediate 50 pip move up in the Aussie. Yesterday we saw bullish sentiment on the AUD after the RBA statement failed to show any strong intentions for further cuts and stated that inflation was expected to remain within target for the next 2 years. The statement combined with today’s data has shifted AUD to a more neutral stance fundamentally and if the data remains positive we may see AUD well bid against some weaker currencies.
Also in Asia the RBNZ released a consultation paper regarding the Loan-to-Value rules. The news rules are expected to reduce Auckland property prices by 8%. This can be viewed as a prelude to a rate cut by the bank. In addition to this bearish news, GDT Price Index came in negative for the 6th fortnight in a row.
The USD remains the strongest currency in the longer term. The recent CPI reading has reaffirmed USD strength amid speculation of a rate hike by September. This week’s NFP will be vitally important. Long positioning in the dollar over the past 18 months has been significant; this can cause aggressive downward moves in the USD, occasionally on the back of little fundamental data, as stop-losses are triggered.
The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue. If Greece fails to make any of their imminent repayments, the euro will be pressured further. Conversely, a deal with a solid resolution will precipitate a relief rally.
GBP is looking at a rate hike in the next 12 months. Yesterday’s positive Construction PMI has provided some bullish sentiment on the pound.
AUD: Low commodity prices and a slowdown in China has put bearish pressure on the AUD, however the recent RBA statement did not include any specific mention of further cuts and stated that inflation is expected to remain within target. This, along with better than expected GDP, has provided bullish sentiment for the AUD and has shifted the currency to a more neutral stance fundamentally; if the data remains positive we may see AUD well bid against some weaker currencies.
NZD has a chance of decreasing interest rates next week. The Overnight Index Swap market is pricing a 51% chance of a June 11 cut. Several major banks predict a cut in both June and July, while NZIER expects the RBNZ to remain on hold for at least the rest of the year, as they believe the central bank cannot afford to boost the overheating housing market.
CAD remains on the weaker side of neutral. GDP last Friday was weak, prior to that CPI and Retail Sales were also weak. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD.
JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is major uncertainty in the markets.
CHF is fundamentally a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%.
We will be monitoring levels of support and resistance in unison with any impactful news and the underlying fundamentals in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, Fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).
Other Market Moving News:
Today is a busy calendar with Services PMIs out of European nations including Germany and Great Britain, the ECB Press Conference, US ADP National Employment Change, Trade Balances from both the US and Canada, and finally US ISM Non-Manufacturing PMI and Crude Oil Inventories.
In tomorrow’s Asian session we will see Retail Sales and Trade Balance from Australia.