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FX Update

Australia

Australian Trade Balance printed at a healthy 1.87B yesterday after figures around 0.91b were expected. The Aussie Dollar wasn’t interested in the result moving a wild 10 points against the US Dollar. The figure indicates a surplus of 1.87 Billion for June 2018 making this an increase from the 725M published in May. Monthly Retail Sales prints Today widely expected to be lower at 0.3% from the previous 0.4% Volatility will be played out with (BoE) Bank of England cash rate announcement and US Non-Farm Payroll. Risk appetite has entered the playing field as the week comes to a close and China/ Trump proposal hits the wires. The Australian Dollar will remain under pressure until next week.    

New Zealand

The New Zealand Dollar has eased lower over the week as data has released spoiling any chance of a push higher. With President Trump about to release a proposal to tariff Chinese products a hefty 25% instead of 10% will create a risk off sentiment in currency markets and undoubtedly send the kiwi to test lows. New Zealand Business confidence came in -44.9 with 45% of businesses remaining pessimistic about the coming year. Most are calling it winter and Labour Government related. Finance Minister Grant Robertson said the figure was not a surprise given recent concerns about the global economy. An interesting statement when you look at the political bias consistency over the years. Simon Bridges retaliated saying this figure is the worst in 10 years and shows how worried businesses are. NZ Employment fugues published neutral with the unemployment rate a tad higher to 4.5% from 4.4% but the number of people employed in the NZ workforce increased 0.5%. Watch for US Non-Farm Payroll to rock the boat.   

United States

The US Federal Reserve left their benchmark rate unchanged at 1.75% to 2.00% Thursday. The Labour market has continued to strengthen, and general economic activity has been rising at a positive rate. Unemployment has stayed low with household spending and business investment growing rapidly. Monetary remains as forecasted some months back with a high probability of two further hikes in 2018 expected. September 27 is still expected to be the next date we see 0.25% added, but a hawkish stance will be needed to keep on par for the remainder of the year. Markets are in two minds this week with so much on the economic calendar leaving most to scratch their heads and ponder what if. Trump is expected to make an announcement soon on Chinese tariffs, the proposal is to make the tariff 25% on Chinese products instead of the considered 10%. Non-Farm Payroll prints tomorrow and is expected to be around 190k down from last month’s figure of 213k ending a confusing week of currency risk.

United Kingdom

The British Pound has flatlined this week as markets anticipating the Bank of England (BoE) cash rate announcement. The BoE Bank of England Tightened policy last night to 0.75% as we expected with the chances being as high as 90% this would happen. The vote was a resounding 9-0 in favour. Although we saw some volatility in the GBP around the release it’s largely ended up unchanged. Brexit negotiations still hold the key looking forward with many considering a possible collapse in negotiations. Recent data has suggested a blip in UK growth, manufacturing sectors are still returning positive figures and the employment rate is still slow at 4.2%. Carney said one rate hike per year should be enough to get inflation back on target as a rue. It was apparent the UK still have a headwind battle with Brexit concerns and housing slowing. Depending on how Brexit turns out leaves the door open to play around with  policy.  

Europe

It’s been a relatively quiet week for the Euro after German CPI and Spanish GDP mixed results earlier this week. The Euro retraced early gains to 1.1740 travelling back to the weekly open of 1.1650 against a stronger greenback. Consumer Price Index (CPI) released higher than the expected 2.00% to 2.10% but never made an impact. German Retail Sales was also slightly higher than economists were expecting at 1.2% but importantly 1.6% higher than the same time last year. All eyes turn to US employment data out tonight. Trade tariff talks are about to heat up as well with Trump poised to make an important announcement regarding Chinese tariffs- markets will remain “risk off” potentially for the rest of the week depending on how US Non-Farm Payroll surprises markets. Draghi speaks on three different occasion next week which will no-doubt impact the Euro.

Japan

The Japanese Yen slumped to 112.10 Wednesday on US strength, following a line of positive US data. Equities and risk products have all levelled off after nervous market players chose a wait and see approach. They will stay its course for further rate hikes following Tuesday’s Bank of Japan’s meeting where they pledged to keep rates low for an extended time with possible modest tweaks to its policy. Market makers agreed Japan’s reluctance to change its policy stems from its desire to keep the Japanese Yen competitive, especially against the Chinese Yuan. The Chinese have let its currency weaken off more than 7% since the June trade discussions on tariffs started. Japan has a full calendar of data next week including Current Account Wednesday and quarterly GDP.  

Canada

Uncertainty is the theme of the week, the Canadian Dollar has been on a gradual slide since the open in a series of lower highs and lower lows. Trading at 1.3000 a pivotal area risk sentiment will have the upper hand over the next few days. If President Trump gets his way he will increase the China tariff on Chinese made products to 25% instead of the earlier talked about 10%. Any topside movement in the short term will be on a short leash with NAFTA talks between Mexico and US taking place as Canadian officials rejected to be part of discussions. The Canadian Dollar weakened off the news and may continue to do so as we get the feeling a risk off sentiment is brewing. Crude oil hovers around the 67.70 area after being at 70.40 at the beginning of the week and has also hampered the CAD. Monday we have a Canadian holiday (Civic Day), representing a slow start to the week.  

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