Currency markets were all broadly weaker through the later stages of the week once risk markets were put on notice. The Federal Reserve held their benchmark rate unchanged at 2.00%. September 27 is the next Fed meeting which markets are expecting a hike to 2.25% with a strong possibility later in the year for another if economic data continues to print well. The Non-Farm Payroll figure came in light at 157K which surprised markets after 191K was predicted. The number for July is weaker but upward revisions to May and June totalling 59K jobs show overall its close to market predictions. The employment rate moved lower to 3.9% from 4% with wages rising 0.3% month on month inline with expectations. Trade tensions have surfaced once again with President Trump proposing a change from the 10% tariff on Chinese products to 25% on US 200B worth of Chinese products, this week this should continue to dominate markets. China have retaliated with a range of their own tariffs of 60B worth of US products with anywhere between 5% and 25% levy. The RBA and RBNZ both have Cash rate and monetary statements this week with no real expected changes to policy. The RBA could be cautious with their lingo around inflation given the recent disappointing second quarter figures. The RBNZ more than likely not change their current track with growth weakening and inflation rising, we could see further downside in the kiwi after the announcement. Brexit is still a mess with recent talks stalling. Theresa May still fears that talking up the possibility of a Brexit deal could spark a mass exodus of businesses from Great Britain. A no deal situation still remains a high chance.
Australia bank holiday Monday brought about a slow start to the week and a lack of any real liquidity. Australian Dollar bears dominated most of the prior week depreciating the Aussie to a low of 0.7350 against the greenback. Non-Farm – Payroll disappointed printing down on expectation, with 157,000 fresh people entering the workforce. US Manufacturing was also weaker pushing up the Australian Dollar to 0.7410 where it closed the week. Trade issues between China and the US continue to soften the Aussie with the Chinese economy starting to hurt as a result. The Chinese equity market is down 17% this year with the Chinese currency the Yuan devaluing 7%. If tensions rise further global growth could take a hit denting oil prices and making it difficult for the Australian mining sector. Expect the same rhetoric during the RBA announcement Thursday and the cash rate to stay unchanged at 1.50%
The New Zealand Dollar saw little upside from Tuesday with the currency falling across the board in heavy trading. US Non-Farm Payroll figures were lighter than markets were expecting weakening the US Dollar late Friday, the kiwi pushing higher to 0.6760 against the greenback at one point trading to a low of 0.6720. The RBNZ will announce their cash rate Thursday which will in turn remain unchanged at 1.75%. Adrian Orr won’t deviate from recent rhetoric which includes weakening growth and slowly rising inflation. Trade Tensions will dominate proceedings again this week with more retaliations expected from President Trump on Chinese Products and likewise for China. We expect the New Zealand Dollar to fall in value after the announcement to retest late June bottoms.
The US Non-Farm Payroll July figures disappointed Friday but with May and June revised results printing higher at 59,000, these figures have more than alleviated the weaker July showing. The figures showed an increase to the US workforce of 157,000 for July but was down on the expected 191,000 markets were expecting. The unemployment rate also published down at 3.9% from 4.00% not a huge decrease but a positive result nonetheless. ISM Manufacturing published weaker than thought at 55.7 compared to 58.6 and helped to keep the US Dollar under pressure leading into the weekly close. This week we have Producer Price Index which should show growth for the third straight month around 0.2% and later in the week pivotal monthly Consumer Price Index. Expect further fireworks from Trump this week as he ramps up trade tariff speak with China.
The British Pound saw quiet early trading in anticipation of the Bank of England cash rate announcement. The BoE excitement didn’t disappoint with the vote returning a 9-love in favour of the hike to 0.75%. The announcement was largely factored into markets already but perhaps not quite as much as thought. The Pound retreated from around 1.3130 on the announcement sliding to 1.2975 – 155 points versus the greenback and lost ground all other major currencies. Recent data has suggested a glitch in UK growth with manufacturing sectors still returning positive figures and the employment rate is still low at 4.2% The next fully prices in rate hike is seen for September 2019 although what happens between now and then with Brexit could impact. Further Brexit headlines and noise could move the Sterling sharply in either direction. The Pound hangs just shy of 1.2970 the low of August 2017
The Euro fall heavily last week with the currency being the worst performing currency of the top eight. Against the US Dollar it was abandoned in a sea of US Dollar strength to 1.1560. With a lack of any significant local releases through the second part of the week the Euro has struggled to gain any traction with mostly positive US data publishing. We see nothing on the calendar this week to speak of, only Italian and French Holiday’s Wednesday which will slow up an otherwise wet week for the Euro. Dropping below 1.1500 versus the US Dollar the Euro will delve into an unknown Abyss – post this point we see no significant support through to 1.1200. With a widening monetary policy between the US and the EU expected to widen further with the Fed raising rates in September and perhaps again later in the year we can expect more pressure to go on the EUR. The US 2 year currently yields a multi year high of around 2.65% while the 2 year German equivalent continues to trade at a negative yield. This differential signifies Euro weakness going forward.
The Japanese Yen regained early week losses Friday after markets turned risk averse and bought the Yen on large. US Non-Farm Payroll figures disappointed but with a recently revised 59,000 added from recent history the number of 157,000 didn’t look so bad. The Bank of Japan held their monetary policy minutes and has decided to continue guiding 10- year Government Bond yields around 0%. Members were in agreement that financial conditions in Japan were highly accommodative and shared the view that under QQE (Quantitative Easing) with yield curve control companies funding costs have been at extremely low levels with financial institutions and lending attitudes continue to be active. The Current Account prints tomorrow.
Canadian holiday Monday has made for thin trading on the weekly open. The Canadian Dollar has gaped to 1.3015 after news hit headlines suggesting the Saudi Ministry of Foreign Affairs accused Canada of making “false” statements and interfering with Saudi Internal affairs. The Canadian ambassador was no longer welcome in the country. The news came in the wake of Global Affairs Canada issued a statement criticizing the arrest of Samar Badawi the sister of jailed blogger Ralf Badawi. The Saudi Arabian government has frozen all trade investments with Canada as a result. Crude Oil prices are stable around the 68.50 mark with further trade tensions between China and the US expected to dominate markets this week. Canadian unemployment figures print at the end of the week.
Major Announcements (Tuesday only)
- US Federal Reserve left rates unchanged at 2.00% leaving the door open for 27th September
- Bank of Japan left raets on hold at -0.10%
- Bank of England raised their OCR to 0.75% from 0.5%
- Australian Retail Sales rose to 0.4% from 0.3%
- US Non-Farm Payroll printed at -157k down from 191k, USD stayed strong.
- Australian and Canadian Bank holidays Monday.