US dollar extends gains against risk currencies

Risk unwound as geopolitical risk ramped up on the Russia/Ukraine front. 

Source: Bloomberg

This saw traders overlook news that a Gaza ceasefire was agreed. President Putin reportedly ordered his government to investigate retaliatory sanctions against the EU and US. There is also renewed build-up of Russian troops at the Ukraine border resulting in fears of Russia invading Ukraine.

While risk unwound, the other key theme in the FX space was US dollar strength as traders focused on the best ISM non-manufacturing reading since December 2005. Fed members Mr Lacker, Mr Fisher and Mr Plosser have all sounded a hawkish tone recently and the market is certainly starting to pay attention.  Later in the US we have June trade balance and further data beats will only fan the hawkish bias.

Kiwi drops on dairy and jobs

One pair I’m watching closely at the moment is NZD/USD. The Kiwi is struggling on the back of a plunge in Fonterra's global dairy trade (GDT) price index. The plunge has been blamed on lack of Chinese participation due to excess inventories seems. With jobs numbers out of New Zealand missing estimates this morning, there could be room for further near term weakness. While the unemployment rate came in at a better than expected 5.6% (versus 5.8%), employment change missed estimates at 3.7%, while the market was expecting 4%.

The pair has struggled ever since breaking the key uptrend support on July 25 and looks like it is on the verge of extending these losses. This uptrend support line had been in place since February and with the RBNZ now looking like it’ll pause on rates for a while, there is room for further NZD downside. The next key level for NZD/USD is at 0.8400 which is where June lows were.

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