Monthly FX Focus – August 2016

FUNDAMENTAL OUTLOOK

AUD/USD – extended its previous month’s gains in July, gaining another +2.1% for the month overall. The increase in the rate was in part due to U.S. economic indicators signalling a reduced chance of a rate hike from the Fed this summer and despite Australian economic numbers, which for the most part failed to meet expectations in July.

Due to interest rates holding steady in the United States and increased economic activity in Australia due to the RBA rate cut, the outlook for the rate is neutral in the near term and higher in the medium and long terms.

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NZD/USD – extended its previous month’s gains in July, adding another +1.0% to its +5.4% gain in June. The increase in the rate was in part due to asset flows favouring the Kiwi over the Greenback, a reduced chance of a Fed interest rate hike this summer and mixed U.S. economic numbers. New Zealand economic data was mostly in line with expectations in July. The RBNZ didn’t cut rates in July’s meeting but is expected to cut rates by 25 bps at its next meeting on August 11th.

Due to the reduced chance of a rate hike by the Fed and with the RBNZ rate cut already priced in the market, the outlook for the rate is higher in all time frames.

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EUR/NZD – fell a fraction in July, declining -0.3% for the month overall. The fractional decline in the cross was in part due to asset flows favouring the Kiwi over the Euro, with mostly positive economic numbers from both economies. New Zealand economic data was for the most part in line with expectations in July. The RBNZ did not meet for a rate decision in July, although the central bank is expected to cut rates by 25 bps at its next meeting on August 11th.

Due to a 98% chance of an RBNZ rate cut on the 19th and with improvements in Eurozone economic data, the outlook on the cross is neutral in the near term and higher in the medium and long terms.

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GBP/AUD – extended its previous month’s losses, declining another -2.4% overall in July. The loss in the cross was in part due to continued pressure on Sterling after the Brexit results and expectations of a BOE interest rate cut, which materialized at the central bank’s latest meeting on August 4th. Economic data out of the UK was mostly better than expected in July.

Australian economic numbers were mostly lower than expected in July. With only one exception, all significant Australian economic releases in July were either lower than expected or in line with the consensus.

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AUD/EUR – extended its previous month’s gains in July, increasing by +1.3% for the month overall. The increase in the cross was in part due to continued pressure on the Euro after the Brexit vote and despite lower than expected Australian numbers. Economic data out of Australia began with lower than expected Building Approvals, which declined -5.2% m/m versus an expectation of -3.6%.

Due to asset flows favouring the Aussie over the Euro, as well as the interest rate differential, the outlook on the cross continues to be higher in the near and medium terms and neutral in the long term.

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TECHNICAL OUTLOOK

AUD/USD – After touching a key downtrend line at 0.7835 on April 20th, AUD/USD fell to 0.7144 by May 23rd, before then rising to touch that same line again at 0.7676 on July 14th. A subsequent dip to 0.7416 was followed by a rise to 0.7637 to again test that line.

Overall, AUD/USD’s near and medium term outlooks look bullish, although the rate has recently had a difficult time breaching a long term falling channel line that has strengthened its significance.  A sustained up break would yield a 1,589 pip breakout objective.

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NZD/USD – rose correctively to make double peaks at 0.7053/54 in April and early May, but then broke the 0.6796 intervening neckline level to fall to 0.6673 in late May. The rate then bounced to 0.7288 on June 22nd, dropped sharply to 0.6241, and then recovered to peak at 0.7324 on July 10th. Another drop to the 0.6945/49 region ensued, but support there provoked a bounce to 0.7256 by August 1st.

Overall, NZD/USD’s outlook looks neutral near term but bullish medium term, as the rate seems to be consolidating within a descending triangle pattern accompanied by RSI divergence at notable peaks and troughs.

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EUR/NZD – has been falling overall since peaking at 1.6931 on May 9th. It broke out of a medium term triangular consolidation pattern that had a 3,053 pip initial width when its lower trend line was at 1.6727 yielding a 1.3674 objective.

EUR/NZD’s near term outlook has neutralized, while its medium term outlook remains bearish. Also, a bullish flag pattern appears to be forming on the daily charts as a reaction from the 1.5074 low after bullish regular divergence showed up on the RSI.

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GBP/AUD – Since peaking at 2.0528 on May 25th, GBP/AUD has been falling overall. After initially finding support at 1.9007 on June 14th, the cross bounced to 1.9734 from where a fresh decline commenced that took GBP/AUD down to 1.7037 by July 7th. The cross has since consolidated above that low, only retracing up to 1.7787.

Overall, GBP/AUD’s near term outlook has neutralized, while its medium term outlook remains bearish now that the cross has sustained a downwards break from its medium term rising channel. The cross is now consolidating just above its as yet unsatisfied 3,202 pip channel breakout objective situated at 1.6855.

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AUD/EUR – After AUD/EUR based at the 0.6023 level last August, the cross has been consolidating above that level in a triangular pattern below good resistance seen in at the 0.7310 level.  Since touching a low at 0.6386 in early June, the cross rose to find resistance at 0.6905. After then correcting as low as 0.6710, the cross has swung higher and threatens to break its recent consolidation.

AUD/EUR’s near term and medium term outlooks remain bullish as the cross trades near the upper resistance line of two triangular patterns and a descending wedge that are all approaching their apex. Still, bearish RSI divergence hints of a downside reversal.

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Te’a Truong | Account Manager – Partnerships | OFX

T: +61 2 8667 8062 | F: +61 2 8667 8080 | M: +61 0479 198 345
teatruong@ofx.com | www.ofx.com

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