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Australia

The Australian Dollar has flatlined this week with no local data releasing. Starting the week around 0.7200 against the greenback it is currently trading around the 0.7220 level. Second tier Consumer Sentiment printed at optimistic levels suggesting a prosperous long term Australian economy but with falling house prices weighing on sentiment perhaps not.  Tightening credit on lending could be detrimental with the banks suggesting smaller businesses could suffer getting the required funding as this has a large flow on effect to overall growth and business confidence. House Price Index figures printed bang on expectation at -1.5% with most of the result already factored into current price action. Next week on the docket we have Aussie unemployment and job numbers.      

New Zealand

The kiwi is lower this week, down slightly against the US Dollar and remaining fairly confined to ranges against the crosses. A better tone in currency sentiment has eventuated over the week after poor US data Friday dragged risk currencies south along with equity markets. This week we have a slow calendar with nothing of note. The RBNZ is formally as of today part of the (NGFS) Network of Central Banks and Supervisors for Greening the Financial System. Are they serious? Next week on the economic docket we have quarterly GDP, Trade Balance and ANZ Business Confidence to look forward to.  

United States

US equities bounced back from lows Thursday, the Nasdaq up over 1.34% on the day with better than expected US data and risk interest. After US Jobs data late last week failed to spike the greenback with figures releasing down on expectation the big dollar has bounced back strongly to outperform all major currencies except the Aussie this week. The (PPI) Producer Price Index edged up 0.3% for the month of November after 0.1% was expected. Leading the way was a decrease in the cost of gas prices, electronic power, fruits and organic chemicals with residential household gas prices also decreasing. We are still seeing a lot of anxiety out there hanging on the US trade deal with China, until we see a resolution markets will remain nervous. Trump saying he would not raise tariffs on Chinese imports until he was sure about a comprehensive agreement. Meanwhile as part of the ongoing truce agreement China purchased 500,000 tons of US soybeans this week. We think it’s still a sell the rally rather than buy the dip market with the US crosses until early next year. The Fed will raise rates next week to 2.5% from 2.25% as widely expected but after that its looking increasingly unlikely they will hike/tighten policy in the first half of next year.  

United Kingdom

Yesterday morning Theresa May survived an attempt to ditch her as the UK prime minister, marginally winning the vote 200 to 117 in a secret ballot. The size of the votes against her will weaken her position as she continues to guide the UK from the European Union. The Pound (GBP) eased lower 20 points against the Dollar and 10 points against the Kiwi to 0.5430. UK Manufacturing has not helped the Pound this week coming in at -0.9% showing total manufacturing output has been flat with little growth. The only offset has been a lift to mining and quarrying. The Pound will continue to struggle heading into 2019 with further uncertainty on the terms of the agreement still up in the air with the potential of a “no deal Brexit” still a possibility. Next week Theresa May will meet with the EU where she will plead her case on a better deal but the EU to date have made it fairly clear they don’t want to negotiate further. The official (BoE) Bank of England cash rate is announced with the vote expected to be 0-9 in favour of retaining it at 0.75%          

Europe

The Euro is still mainly range bound against the greenback trading between 1.1270 and 1.1440 over the week with shifting risk sentiment weighing on the EUR. The Italian budget is still ongoing with the EU reporting they may grant the Italians further time. The EU may grant an additional 6 months to comply with the budget constraints with the ruling League and Five Star parties unwilling to reduce the budget from the 2.1% on annual economic output for 2019. The EU are requesting the figure to be closer to 1.9%. The ECB has had cause for concern with worrying Brexit signs and the US trade war but these factors are not enough to change the current monetary policy direction. The ECB refinancing rate published at the expected 0.0% overnight with Draghi saying inflation to decrease over the coming months but for now significant monetary stimulus was still necessary.

Japan

The US Dollar is back in favour after risk products bounced back from early week lows. The Japanese Yen has slipped further into the red with price reaching a level of 113.70 Friday. Comments to come out of last weekend’s G20 from Trump suggested a 3 month Chinese trade truce with further negotiating to take place but were dispelled when the president changed his tune and went on the defensive taking on a hard line approach to protecting US assets. When we look at the decline of equity markets and a lowering US 10 year Bond curve we suggest the price action moves below 113.00 seems modest. Further downside momentum is expected if equities remain under pressure. The ongoing trade war uncertainty should also give the JPY a further boost. Buy the dip.

Canada

The record 5.6% unemployment should improve the odds of a hike in the Canadian cash rate by the Bank of Canada in January 2019 with improving wage growth. Coming off 5.8% an additional 94,000 jobs were added in mostly full time gains spread evenly across the different business sectors. OPEC – The Organisation of the Petroleum Exporting Countries met last week in Vienna agreeing on the size of oil production cuts. The 1.2M barrels per day starting in January with a review in April. This comprises of 800k barrels per day by OPEC and the balance will be met by other OPEC countries. The cut is bigger than we were expecting with Iran holding up the process. The non OPEC volume is only likely to have small effects to the crude oil price. Crude jumped to 52.50 after the news strengthening the CAD. The BoC will closely watch ongoing price fluctuation in the Crude price leading into the 9 January cash rate announcement. Next week’s focus lies with monthly CPI Wednesday with GDP and Retail Sales Friday.  

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