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FX Update

Australia

Yesterday morning’s Federal Reserve rate meeting took the Aussie outside its weekly range back into the 0.73’s against the US Dollar it but soon retraced lower easing to 0.7255 Thursday. Generally the Aussie Dollar has been choppy across the board only claiming victory over the kiwi, Japanese Yen and the Canadian Dollar in uncertain geopolitical times. US Fed’s Powell delivered a statement markets were expecting reiterating monetary policy would stay on its current path well into 2020 with further rate increases to come. The Aussie has endured a quiet week with no actual local economic data on the docket highlighting lighter volumes of currency trading. For now the Australian Dollar appears reasonably resilient with higher annual GDP and recent buoyant wage growth taking the currency off its recent low’s. Trade talks continue to weigh on overall Aussie sentiment after China pulled the pin on this week’s chats with Trump and his administration. Next week’s RBA cash rate meeting Tuesday will be the main event of the week, where the RBA is widely expected to keep the cash rate unchanged at 1.5%. We may get a surprise or two, Retail Sales releases next Friday.       

New Zealand

The (RBNZ) Reserve Bank of New Zealand kept the main cash rate unchanged at 1.75% Thursday as widely expected. Comments made by Adrian Orr were not as dovish as markets were predicting with Orr confirming his view that growth will gather momentum over the coming year. He also made comment that the next rate move could be “up or down” with policy to remain expansionary for a considerable time keeping the OCR at the current level until at-least through 2019 and possibly into 2020. Ongoing global trade tensions could see global growth in trouble if the situation didn’t improve with the lower New Zealand Dollar expected to support local exports. Local spending by individuals and government is expected to assist with ongoing growth with inflationary pressures expected to rise.

United States

The US Federal Reserve Cash Rate announcement Thursday Morning saw a hike of 0.25% to the current 2.00% raising it to 2.25% as markets were expecting. No major changes to current policy were forthcoming making for a soft response from currency markets with the US Dollar relatively unchanged over the reading of the statement by governor Powell. Interestingly the word “accommodative’ was removed from the statement with the Fed rate still below member estimates of the long-term neutral rate. Removing this now signals the Fed is unsure of where “neutral” but confirms no real change on how they view the current path of monetary policy. One further hike this year together with three more in 2019 and one more in 2020 will bring the Fed rate to somewhere around 3.25%. Equity markets remain slightly aligned to a negative bias with global trade uncertainties remaining with the US Dollar Index still hovering around the 94.5 zone. President Trump the main speaker at the recent UN meeting received laughs he wasn’t expecting after boasting of his administration’s achievements. I suspect he may have been expecting cheers of support but the audience didn’t entirely share his opinion of recent successes. Were they laughing at him or with him, I’m not sure, however unsettling it was I suspect it didn’t faze him in his pursuit for patriotism not globalization. Quarterly GDP data printed at 4.2% bang on expectations overnight but helped push the US Dollar higher.

United Kingdom

Brexit confusion rolls on this week with political confusion now also a worry with both conservatives and the opposition labour party look to consider the possibility of a snap election as early as November. This comes after May’s disastrous meeting last week with EU’s Salzburg which appeared to throw May and her Brexit proposals into disarray. Given the last election result the chances of this happening remain extremely unlikely. France’s Finance minister has waded in on recent developments saying the EU should never accept a May Brexit plan because it would “spell the end” of Europe. Le Maire said the EU should concentrate on other more important matters concerning the EU. He said there would far more at stake for Britain with only a limited impact on French economic growth. The British Pound continues to be supported with mostly recent positive data highlighting a period of solid buoyant momentum from the recent low of 1.2700 to push back above 1.3300. The Pound still needs further Brexit positive headlines to retest May 2018 levels of 1.4250. UK quarterly Current Account releases Friday night and should reflect a good number based on recent decreasing deficits.

Europe

ECB President Mario Draghi addressed the European Parliament earlier in the week pushing his forecast for solid growth saying the underlying inflation in Europe looks set to rise. Over the coming months the labour market should tighten and push up wage growth. The annualised rates of European inflation are tipped to sit around 1.70% until 2020, the ECB projections for core inflation, excluding food and energy should reach 1.8% also in 2020. The Euro enjoyed fresh levels above 1.1800 versus the US Dollar but soon fall back to 1.1650 amid worse than expected ECB monetary growth figures and the US Fed decision. The Fed have raised rates for the third time this year as widely expected putting pressure on the Euro. We have seen concerning headlines out of Italy after the coalition government is making last minute efforts to ensure its expensive election promises are included in the spending budgets, this risks blowing out the country’s deficit beyond the comfort of Brussels and markets. Spanish yearly CPI figures release tonight.

Japan

US Equities clicked higher overnight as overwhelming fear in the markets took a breather. The Japanese Yen was sold off across the board with risk sentiment improving. News of Japan avoiding US tariffs has not done much to inspire confidence considering how volatile trade talks with the US have been over the past few months. Japan’s Abe is willing to make concessions with US officials in the hope of avoiding further US tariffs as the two parties meet for further discussions a second time. The calendar over the remainder of the week will focus on US releases with Core Durable Goods and University of Michigan Consumer Confidence the highlights. Technically the Japanese Yen has suffered its third straight week of declines against the US Dollar trading at 113.40 Friday a 2018 high.  

Canada

The Loonie (CAD) has been looking forward to a NAFTA deal now for some time with the latest deadline for a resolution being September 30th. The CAD was boosted Thursday after a solid pickup in Crude Oil prices back over 70.00 but talks continue to drag on in the latest war of tensions between the US and China doing nothing to help the process with the Canadian Dollar remaining on the back foot until an agreement can be reached. The pair has broken above the key psychological level of 1.3000 vs the US Dollar but has run into stiff resistance unable to breach the 50 and 100 moving averages. Next week’s employment data and trade balance will be the main releases next week.

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