Kiwi trims losses post-RBNZ rate hike, euro slides

Dollar Extends Gains Ahead of US Payrolls Report

Summary: New Zealand’s Kiwi Dollar trimmed losses after tumbling to a weekly low at 0.6876 from its 0.6960 opening yesterday. The move came after the RBNZ’s decision to hike its Official Cash Rate by 25 basis points to 0.5%. It was the 1^st rate hike by the New Zealand Central Bank in 7 years. The NZD/USD pair soared to a high at 0.6979 immediately after the news before tumbling lower. After the dust settled, the NZD/USD pair finished at 0.6917 in New York. Elsewhere, dismal European economic data saw the EUR/USD pair slide to close near late July lows at 1.1595 (1.1622). The Dollar Index (USD/DXY), which measures the value of the Greenback against a basket of 6 major currencies, extended its gains to 94.22 (94.00), up 0.26%. The Australian Dollar dipped 0.18% to 0.7275 from 0.7288 yesterday. Sterling slipped 0.27% to 1.3588 (1.3622). The Dollar finished modestly lower against the Japanese Yen to 111.38 from 111.50 yesterday. USD/CHF dipped to 0.9272 (0.9283). Against the Asian and Emerging Market currencies, the US Dollar was mostly higher. The USD/SGD pair climbed to 1.3588 (1.3573) while the USD/THB (US Dollar vs Thai Baht) was last at 33.80, little changed from 33.84 yesterday. The USD/CNH pair (Dollar-Offshore Chinese Yuan) settled at 6.4545 (6.4490 yesterday).

Risk appetite improved after US lawmakers looked likely to extend its massive debt limit to December. Equity markets edged higher. The DOW was last at 34,435 (34,350) while the S&P 500 finished at 4,365 (4,345 yesterday). Global bond yields were mixed with the benchmark US 10-year Treasury bond rate at 4.525 (1.53%). Germany’s Ten-Year Bund yield closed at -0.18% (-0.19%). The Japanese 10-year JGB yield was last at 0.08% from 0.05% yesterday.

Data released yesterday saw Germany’s August Factory Orders slump to -7.7% from -3.4% in July and worse than median estimates at -2.1%. That’s huge! The Eurozone’s August Retail Sales missed median expectations of 0.8%, slipping to 0.3%. Eurozone Annual Sales in August slumped to 0% against forecasts at 0.7%. UK September Construction Output eased to 52.6 from 55.2, missing estimates at 54.0. US September ADP Non-Farm Employment climbed to 568,000 from a downward revised gain of 340,000 in August, beating forecasts at 425,000.

• EUR/USD – slip-sliding away, the shared currency extended its drop against the Greenback following the dismal European economic data. EUR/USD settled at 1.1595 from yesterday’s opening at 1.1622. Overnight the Euro hit a low at 1.1580 before settling to its NY close.
• NZD/USD – The Kiwi had a volatile trading session following the RBNZ’s decision to hike its Official Cash Rate by 25 basis points to 0.5% (0.25%). Markets initially drove the NZD/USD pair higher to 0.6976 overnight highs before the big tumble. The US Dollar regained its ascendancy following the strong US ADP report. Most traders expect the Fed to taper its stimulus next month if Friday’s US Payrolls report meets expectations.
• AUD/USD – The Aussie Batter dipped, settling at 0.7275 from 0.7288 yesterday. The overall stronger US Dollar and weaker Kiwi and Asian/EMFX weighed on the AUD/USD pair. The AUD/NZD cross though settled 0.40% higher to 1.0520 (1.0473 yesterday).
• USD/JPY – finished little changed at 111.38 from 111.50 yesterday. Overnight, the USD/JPY hit a high at 111.79 on broad-based US Dollar strength. Later in the day, the Greenback slumped to 111.20 overnight low before settling at its New York close. The narrower differential between US and Japanese 10-year bond yields weighed on the USD/JPY pair.

On the Lookout: Today’s economic calendar is light ahead of tomorrow’s US Payrolls report which is the highlight of the week. Australia’s AIG September Services Index was little changed at 45.7 from a previous 45.6. Japan is next with its Preliminary August Leading Economic Indicator (f/c range from 102.0-104.3 from July’s 104.1). Switzerland kicks off European reports with its September Unemployment Rate (f/c 2.8% from 2.9%). Germany follows with its August German Industrial Production data (m/m f/c -0.4% from previous 1.0% - ACY Finlogix). France reports its August Trade Balance which is a Deficit (f/c -EUR 6.8 billion from -EUR 6.96 billion). Italy follows with August Retail Sales (m/m f/c 0.2% from July’s -0.4%). The ECB releases its Monetary Policy Meeting Accounts next. US releases its September Challenger Job Cuts (no f/c given, previous was 15,723 – ACY Finlogix). US Initial Jobless Claims follow (f/c 348,000 to 350,000 from previous 362,000). US August Consumer Credit Change is next (f/c USD 17.5 billion from previous USD 17 billion). Canada releases its September IVEY PMI report (f/c 60.3-60.7 from August’s 66.0). Chinese markets are still out today with their one week National/Golden Week break.

Trading Perspective: The Dollar should maintain its overall bid as FX markets consolidate gains ahead of tomorrow’s US Payrolls report. Stronger than expected US Private Payrolls (ADP) amidst subsiding Covid-19 infections lifted sentiment. An agreement of opposition US Republican lawmakers to extend the US debt ceiling into December also eased market worries. The debt ceiling is a drama that we have seen come and go in the past few years. It is nothing new.
The Dollar Index (USD/DXY) settled 0.26% higher to 94.22 overnight. A week ago, USD/DXY was at 94.37. Earlier this week we saw a slide in the Dollar Index to 93.68 (Oct 5). We can expect more profit-taking and position adjustments to prevent any further advances for the Greenback.

• EUR/USD – The Euro still looks heavy at the outset and the medium-term direction for the shared currency is south. However, we can expect consolidation ahead of tomorrow’s crucial US Jobs report. EUR/USD has immediate support at 1.1530 (overnight low 1.1529). The next support level is found at 1.1500 and then 1.1470. Immediate resistance for today can be found at 1.1600 (overnight high traded 1.1598). The next resistance level is found at 1.1630. Look for a likely trading range today of 1.1535-85. Preference is to sell EUR/USD rallies. We’re headed south in this currency pair.

(Source: Finlogix.com)

• AUD/USD – The Australian Dollar managed to trim its losses, settling at 0.7275 from 0.7288 yesterday. Overnight the Aussie Battler slid to a low at 0.7226 before rebounding to settle at its New York close. Overnight high traded was at 0.7292. Immediate resistance on the day lies at 0.7290 followed by 0.7320. We can find immediate support at 0.7250 and 0.7220. Look for the Aussie to consolidate in a likely range today of 0.7220-0.7290. Prefer to sell rallies on the AUD/USD pair today.
• NZD/USD – The Kiwi settled at 0.6917 in choppy trade that saw an overnight peak at 0.6979 and overnight low at 0.6876. The RBNZ raised its Official Cash Rate to 0.5% from 0.25%. Although it was the first hike by the New Zealand central bank in seven years, it was not unexpected, and totally priced in. For today, immediate resistance lies at 0.6940 followed by 0.6980. Immediate support can be found at 0.6900 and 0.6870. Look for the Kiwi to trade in a likely range today between 0.6890-0.6950. Prefer to sell rallies.
• GBP/USD – Sterling eased against the Greenback on broad-based US Dollar strength. The British Pound closed at 1.3588 from 1.3622, down 0.27%. Overnight the GBP/USD pair traded to a high at 1.3631 before easing to settle lower. Sterling saw an overnight low at 1.3544. Immediate support for the British Pound lies at 1.3550 followed by 1.3520. For today immediate resistance lies at 1.3620 followed by 1.3655 and 1.3685. Look for Sterling to trade in a likely range today of 1.3540-1.3620. Prefer to sell GBP/USD rallies.