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Antipodeans Falter with Equities Remaining on Back Foot

FOREX
  • Major equity indices remained on the back foot on Friday, having come under significant pressure in the latter half of the week. Despite this, the USD index only rose 0.15%, with most major currencies respecting relatively narrow ranges ahead of the weekend.
  • Risk sensitive AUD and NZD were the biggest losers on Friday, with NZDUSD (-0.56%) extending on some early weakness as the NZ-US 2yr spread fell back below 0bps.
  • We highlight the most recent AUDNZD outperformance has been driven by a narrowing in the NZ-AU 3-month swap rate 1-year forward (1Y3M) spread, which has narrowed more than 190bps since its cyclical high in mid-2023.
  • For AUDUSD itself, price action sees the pair slip back below the prior breakout level at 0.6715, a potentially bearish development if we were to see a weekly close below this mark. A deeper retracement lower would place the focus on 0.6666, the 50-day EMA and then 0.6576, the Jun 10 low and a key support.
  • Despite the impressive 350 pip range for USDJPY this week, the pair sits just moderately lower as markets digest the most recent intervention from the MOF/BOJ and the upcoming central bank meeting at the end of July.
  • The underlying softening of US data prompted an extension lower for USDJPY, exacerbated by a yen positioning squeeze as analysts scrutinised the attractiveness of carry trade strategies. USDJPY printed as low as 155.38 on Thursday, however, safe haven dollar demand has provoked a strong recovery off these lows to around 157.50 at typing.
  • Overall, the most recent selloff highlights a potential reversal and signals scope for a deeper retracement, towards 154.55 next, the Jun 4 low. Initial firm resistance is seen at 159.16, the 20-day EMA.
  • With a quiet start to next week’s data schedule, emphasis will be placed on European flash PMIs, the Bank of Canada decision and US GDP.
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