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Attentions around Syrian Missile Strike

Market Overview:

Markets closed the week relatively uneventfully with no significant data publishing to shift things around. Investors took on risk earlier with equities and commodity markets all making gains, but with Syrian Missile Strike the headline towards the end of the week markets turned to the safe haven as gold came off its low trading back at 1343. Heated trade discussions continued between the US and China with China aiming their efforts directly at US agriculture. Beijing has promised to retaliate with more tariffs aimed at the US agriculture sector which includes soy bean, which could have a massive detrimental effect on US farmers. Reports are that President Trump may be contemplating a move back into TPP (Trans Pacific Partnership). When US withdraw from the TPP this was damaging to US agriculture, but with the Chinese on the front foot with current trade negotiations this could spell total disaster for US farmers. The US, France and UK Fridaynight launched 105 missiles into Syria targeting chemical weapons facilities with reports suggesting to good effect taking out a select few. There are an estimated 50 warehouses in Syria which contain storage of chemical weapons after the 2013 Syria chemical weapons disarmament deal only partially dismantled existing stockpiles. So one would suspect that with the ease of creating further chemical weapons and the stash currently held, the job done by the US, France and UK is only partially completed. Interestingly President Trump never had authority from congress and Theresa May never consulted parliament prior to launching the air strikes. Nine FOMC members speak this week with US Core Retail Sales tomorrow which will give us clues as to further Dollar direction for 2018. Read more

fx

FX News

Australia

The Australian Dollar (AUD) has been broadly stronger against most pairs this week but has generally underperformed this month. As risk markets turned, investors purchased the US Dollar and sold equities leading to the market travelling sideways. Softer CPI Chinese data for March published at 2.1% year on year versus 2.6% expectation bringing the Aussie off its highs across the board. RBA governor Lowe was hawkish when he said the RBA will keep rates on hold for a period of time, the next move will be a hike and may come as a “shock” to markets. The Australian Dollar (AUD) has found some much needed support Friday as the market turned to risk on.

New Zealand

The New Zealand Dollar (NZD) remains strong against a basket of currencies with risk appetite dictating markets. The kiwi came off its highs against the crosses running out of puff post FOMC minutes. Missile strikes in Syria look to be close to starting which helped to dampen stock and commodity prices.  The Reserve Bank assistant governor McDermott spoke Thursday on the evolving inflation targeting over the past 30 years. Dr McDermott said: “Transparency in meeting our objective is as important for anchoring long-term inflation expectations now as it was in 1989, when the framework started. We will be using new communication techniques, such as publishing non-attributed records of meetings that reflect any differences of view among the Monetary Policy Committee.”  “The New Zealand framework has changed significantly over thirty years, reflecting lessons learned and the changing economic and political environment. We are about to enter the next stage of that evolution”. The New Zealand Dollar (NZD) was unmoved during the speech. Markets await further Tweets from President Trump on the Syrian situation.  The business NZ manufacturing index printed slightly worse than expected Friday suggesting a slowing manufacturing sector but made no dent in the surging kiwi. Read more

Trade & Exchange

Trade War Potential Softens

Market Overview:

Trade war, NAFTA and N.Korea all dominate the news.
Friday’s US Non-Farm Payroll figures were negative as the headline print of +103k came in way below the expected +188k, markets reacted accordingly dropping the US Dollar like a lead balloon and helping to raise currencies like GBP, EUR, AUD, CAD and the New Zealand Dollar (NZD). US Unemployment was also below par printing at 4.1% when 4.00 was expected. The Fed’s FOMC minutes Wednesday may read hawkish in line with the dot plot. Trade discussions have continued with the US government and China officials this week, with so many new requests by each party it’s hard to keep track of just who is winning the battle. President Trump tweeted: China will take down its trade barriers because it’s the right thing to do. Taxes will become reciprocal and a deal will be made on intellectual property. It’s clear the US Government wants to negotiate. Over the weekend Steven Mnuchin acknowledged the potential for a trade war but at the same time said he wasn’t expecting it to happen. As things progress it’s evident that the US has the most to lose as President Trump continues to put pressure on China with tariff threats, China has a potential route out of the trade conflict that would be extremely detrimental to both countries as they have an option to open new trade connections to Asia, Africa, and Europe. Plans are surfacing that China could possibly devalue the Yuan as a weapon in the current trade war. China’s president Xi has announced plans to further open up the Chinese economy by significantly lowering tariffs for autos and other products. Xi’s address was seen as positive for markets with him saying China does not seek a trade surplus and has a desire to increase imports. Markets turned to favour risk and the New Zealand Dollar (NZD) and other risk products are significantly bullish late Tuesday. Read more

USD Trading

Easter Trading Sees USD Strength

Market Overview:

The long Easter weekend made for quiet markets, Equities and Commodity markets were both closed Good Friday. FX markets ticked along behind the scenes while in thin trading conditions. Trade talks between the US and China continued dominating the news as a potential for an intl “trade war rises. Initially President Trump was open to negotiations earlier last week bringing risk to the table and giving markets initial optimism. This was soon transposed as buyers sought the US Dollar (USD) and safe haven investments with fresh discussions spooking markets again. President Trump highlighted he was not going to be an easy target initially announcing he was to tariff over 60 Billion worth of imported Chinese products on March 22. China retaliated punishing American Foods, wine, fruits and frozen pork with their own 25% tariffs on around 128 products. This is in direct response to what President Trump calls intellectual property theft with technology transfer policies requiring companies to share technology with Chinese companies to have business interests in China. President Trump claims these rules in place are unfair and allow the China government to abuse American technology. Where it could get super ugly is if the recent moves could push China to introduce taxes on American firms which rely on Chinese manufacturing to keep costs down, as we know wages in china are lower than they are in the US. This week we should see further cages rattled but suspect that China may be interested to calm things down with a proper meeting rather than continue with mudslinging. This week should see plenty of volatility also with the Reserve Bank of Australia (RBA) announcing their cash rate later today and US Non-Farm Payroll at the end of the week. The US Dollar index should continue to trade above the 90.00 handle unless we get a correction lower based on renewed risk sentiment. Read more

US/CHINA

US/China Trade Talks Dominate Headlines

Market Overview:

The new Reserve Banks governor Adrian Orr starts his new job today.
He becomes the 12th governor of the Reserve Bank taking over the Grant Spencer who has been relieving in the role since late last year. Adrian Orr is 54 years old and has will become one of the most influential people in New Zealand with the say over interest rate and loan decisions. He past positions include the head of economics at the RBNZ and over the past 10 years has been Chief Executive of the N Super Fund. He comes on board with a reputation of not mincing his words and will call a spade a spade but will be entertaining. His boldness may get him into trouble with financial markets if he comes across blunt, as sensitive as the markets are he could turn the NZ Dollar in a heartbeat. Finance Minister Grant Robertson and Adrian Orr signed a new (PTA) Policy Targets Agreement Thursday outlining specific targets for price stability and employment, this sets out the provisions of the Reserve Bank Act 1989 over his full 5-year term as governor. US/China trade talks have been dominating headlines with President Donald Trump seeking a to narrow the US Trade Deficit with China by one third. He is looking for a 100B reduction in the US trade deficit, the US had a 337B trade shortfall in goods and services with China last year. We have seen risk appetite return to the markets Monday with most currencies trading higher on the back of positive news with negotiations now taking a cooperative tone. Big Thursday largely became a fizzer based on a lack of movement across the board. The RBNZ kept rates on hold as was widely expected and the Federal Reserve hiked to 1.75% from 1.5% with the Fed chairman Powell highlighting that policy will need to be tightened further, gradually through 2020 as the economy goes through a growth period of inflation nearing 2.0%. Equity markets closed the week on losses with the DOW and the Nasdaq both down over 2%. The US Dollar Index is lower as well back under 90.00 to 89.48 as markets sought risk currencies. In other news Facebook has 100B wiped off the share value in the last 10 days as Cambridge Analytica answers questions on how 50 Million Facebook users got into their hands to assist Trump win his Presidential campaign. Good Friday holiday will see a shortened week in financial markets with only a few key economic announcements of note. Read more

FX News

FX News

Australia

The Australian Dollar (AUD) has largely been range bound over the week against the major pairs lacking any real direction. The US FOMC rate meeting Thursday morning saw the Australian Dollar move north against the US Dollar (USD) coming off a 3 month low of 0.7660 through to 0.7760 on a surging Dollar (USD). At the latest RBA meeting minutes the Reserve Bank of Australia said they are concerned about high household debt and less than favourable wage growth. The RBA are likely to keep interest rates on hold for some time in an effort to lower unemployment and lift inflation. Aussie (AUD) unemployment figures Thursday came in benign at 5.5% based on expectations of 5.6% with 17,500 people adding to the workforce over the month of February. Still, underemployment remains key for RBA policy makers heading into the next few months.

New Zealand

The RBNZ left rates unchanged as expected at 1.75%. It was the last announcement for Acting Governor Grant Spencer as his term ends on the 26th of March. Governor Adrian Orr begins on 27th March. Comments from the RBNZ meeting included; Monetary Policy will remain accommodative for a considerable time, long term inflation expectations will be fairly anchored at 2%, house price inflation remains moderate with weak house price sales, CPI inflation is expected to weaken in the near term due to soft energy and food prices. The Fed Rate stole the show earlier in the morning with a hike from 1.5% to 1.75% as Powell was generally “neutral in his speech but hinted at more hawkishness at a later date. The New Zealand Dollar (NZD) pushed off its low of 0.7150 on the Fed rate announcement to 0.7235 and stood its ground on the RBNZ announcement happy to stick around 0.7230. In other news dairy prices fall 1.2% at the recent global dairy auction dropping to USD 3,632.00 per tonne across all products. Markets were expecting another drop lower by 0.6% but the figure is the 3rd consecutive fall after 3 positive auctions earlier in the year. Read more

Market News

Market Eyes Big Thursday

Market Overview:

The US Dollar continues to strengthen despite political uncertainty.
Vladimir Putin has won a landslide victory election, he has hinted this would be his last term as president. Cementing his rule over Russia for another 6 years. He has secured 75% of the vote. Incredibly his total time as President will be 25 years on 2024, he will be 71 years old. The only President to rule longer is Joseph Stalin. The initial targeted voting was expected to be 70% – this turnout looks like it will significantly above this. South Korea’s foreign minister has said the North Korea’s leader Kim Jong Un has “giving his word” for the potential denuclearisation at the pending summit in May. In a bizarre turn of events Kim Jong Un said he was committed to scraping North Korea’s nuclear weapons and missile testing plans, surely he won’t give up his rights here without a fight for something else? The US Dollar has been under pressure for most of March due to political uncertainty but looks to be turning a corner with economic data continuing to improve. This week we will see the Federal reserve more than likely raise rates but what will keep things interesting is the clues as to how many hikes we will likely see through to the end of the year. With the market expecting 3 hikes, the market will no doubt view any hawkish tone for a possible 4th hike and subsequently lift the US Dollar (USD) higher. In contrast the RBNZ could be dovish Thursday when they announce their Cash Rate and statement, some are predicting a small chance of the cash rate dropping to 1.5% from 1.75%. If this eventuates we could see current NZ Dollar (NZD) levels across the board depreciate reasonably quick. The mostly result however is no change from the RBNZ. The Bank of England will also announce their official Cash rate on Friday with no expectation of any rise above 0.5%, but any hawkish tone in the following announcement may indicate a hike for May’s meeting. Further Brexit talks will continue in Brussels at the end of the week with the transition or implementation period being agreed upon Monday. This will mean the UK will leave the EU on the 29th March next year. The long awaited next phase can start with finalising trade details and future EU and UK relationships post Brexit.  A busy week ahead for financial markets with lots happening to shift markets, with any luck we may see some pairs jump from current ranges.

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FX News

FX News

Australia

The Aussie (AUD) made gains for much of the week against its main rivals, but in the past 12 hours much of that work has been undone. Fears by the RBA continue around wage growth remaining low with household debt levels high, and this is helping to limit AUD gains. The RBA are still optimistic the economy will progress and improve but it will be on their terms and be very gradual. With better than expected Chinese data out this week- both factory and investment in fixed assets were better than consensus, this gave the Australian Dollar (AUD) a slight boost before falling away sharply on broad risk aversion. Any ongoing trade uncertainty between China and the United States will undoubtedly have a detrimental effect on the Australian Economy and the AUD Dollar (AUD). A quiet week to come locally with only unemployment data to print on Thursday.

New Zealand

The New Zealand Dollar (NZD) remains largely range bound this week. Trading sideways against its main rivals the Australian Dollar (AUD), Pound (GBP), Euro (EUR) and the US Dollar (USD). Tuesday RBNZ Spencer about the role of “macro prudential policy and its effects on housing related risk with housing market pressures and uses the policy has with the current environment of low interest rates, the effect on the NZD was minimal. The country’s current account was also released Midweek and was lower than the expected -2.45B with -2.77B printing. The expectation on the New Zealand Dollar (NZD) was seen to be negative by market participants but strangely the kiwi carried on edging up through 0.7330 during local trading against the greenback. A risk averse market followed after President Trump’s announcement that he had sacked the Secretary of state Rex Tillerson with the NZD falling across the board. GDP published Thursday at 0.6% growth as opposed to 0.8% expectation, interestingly the hot summer weather was to blame for this having a negative effect on agriculture production which fell 2.7%, the news choking the New Zealand Dollar (NZD) lower. We expect the NZD to remain well bought over the next while. Read more

Trump Eyes Trade Tariffs

Market Overview:

NZ to seek an exemption to the Steel tariffs. The EU’s top trade officials say they have no clarity on President Trump’s plans on trade tariffs, as his decision to slam hefty tariffs on steel and aluminum builds pressure. Trump posted on twitter- “The European Union, wonderful countries who treat the US very badly on trade, are complaining about tariffs on Steel and Aluminum”, If they drop their horrific barriers and tariffs on US products going in, we will likewise drop ours”. Playground behaviour one would think?!. The President is set to meet Korean dictator Kim Jong Un with many US national security experts suggesting this could end up being a big mistake given the two personalities. In other US led news the Florida Governor has signed off on new gun laws including raising the minimum age to purchase a gun to 21 and extending the waiting period to 3 days. This is the boldest laws made in the state in decades and comes just 3 weeks after the Parklands school shootings. We await other states to follow suite with Illinois and Vermont thinking about with the NRA in damage control filing a lawsuit immediately after the Governor’s announcement. The US Dollar is up slightly over the week with the index breaking back above 90.00. This week will be hard to read as a “risk on” or “risk off” market so direction will be tough accordingly. If equities continue north this could be a sure bet high yielding risk currencies such as the Australian Dollar (AUD), New Zealand Dollar (NZD) and the Canadian Dollar could trade well this week. There are continued calls for a second Brexit ballot. Brexit polls are still close with “remain” still slightly ahead by 51% to 49%, the problem is as things draw closer to the actual date those that have not chosen to vote or the undecided bunch would now more than likely vote to stay/remain than leave, this suggests that any second ballot outcome would depend largely on who actually votes. NZ quarterly GDP prints ThursdayRead more

NZD

FX News

Australia

The Australian Dollar (AUD) strengthened on the RBA announcement Tuesday. Leaving the Cash rate at a record low of 1.5% the RBA remains optimistic regarding growth and rising inflation. Lowe said a lower unemployment rate and low interest rates will give weight for the next move will be upwards, not down, but overall market economists are expecting 2019 to be a more productive year. GDP released weaker than expected soon after and took the Aussie (AUD) off its highs to 0.7770. Monthly Trade Balance figures were released Thursday at 1.06B from expectations of 0.21B nudging the Aussie to a fresh high of 07830.

New Zealand

The New Zealand Dollar (NZD) pushed off lows over the week as risk returned to the markets. US President Trump acknowledged possible progress with North Korea after word that they were willing to negotiate its stance on nuclear weapons. Markets reacted positively squeezing the New Zealand Dollar (NZD) half a cent higher against the greenback up over 0.7300. The Global Dairy Auction this week showed dairy prices dipped -0.6% to reach an average of 3,593.00, clearly a blow to milk producers as the farm gate milk price sits at 6.40 with expectation of this going higher later in the year. No further local date to be released over the rest of the week, we can expect plenty of the usual volatility around Non-Farm Payroll early Saturday morning. Read more