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FX Update

International Trade

Australia

Westpac Consumer Sentiment released at -4.7% evaporating any positive mood carried through 2018. Confidence in the Australian economy has deteriorated recently based on a number of key issues such as falling house prices, disappointing economic growth and uncertainty around the global trade war. This is particularly relevant and has the ability to derail a number of key factors around Australian exports given the weighting over how China and the US continue to negotiate tariff issues. Chinese economic data is expected to get worse in 2019 as the full impact is seen. Chinese authorities have admitted to underestimating the full impact of how the trade war will have on economic stimulus and how it will affect growth. Total exports fell 221 Billion for December down 4.4% from December 2017 numbers. This could have the effect of underpinning the Australian mineral exports to China. No local data to print this week until next week’s employment figures Thursday.

New Zealand

The New Zealand Dollar lost its positive form midweek after fears of OCR cuts and the domestic outlook for 2019 devalued the kiwi, making it the worse performer. REINZ data showed what economists and analysts feared with sales of property taking a hit. Sales for December across the country are down 12.9% with Auckland at -24% after 429 fewer houses sold. Excluding Auckland the number decreased by 8.2%with 358 fewer houses selling compared to 2017 figures. REINZ reported that while December is usually a quiet month these figures are the lowest for December in 7 years. As we expected the Global Dairy Auction reported its fourth straight positive index figure with an increase in price of 4.2% after the increase of 2.8% on the 2nd of January. This should impact positively on the future milk solid price and highlights a good start to 2019. Offshore drivers such as Brexit and the US shutdown could impact the kiwi leading into the close with no further local data to print.  

United States

US Government closures: Dept of Treasury, Dept of Agriculture, Homeland Security, Dept of the Interior, Dept of State, Dept of Housing and Urban Development, Dept of Transportation, Dept of Commerce. The US Govt shutdown has entered its 26th day with no official signs from President Trump that an end is in sight. Interestingly the House of representatives overnight have voted in favour 237-187 to re-open the nine federal departments and agencies through to the 8th of February which would provide 12.1 Billion in disaster aid. The problem being despite the vote by the “House” the republicans won’t support this as it doesn’t include any funding for Trump to build his border wall. Of the 237 in favour only 6 of these were republicans. A number of US economic data releases was due to be print this week including Retail Sales but with the many Govt Departments affected by the closures this data is postponed. Core Durable Goods could release later in the week but don’t count on it. US Equities have had a positive last sessions with the DOW up 0.6% and the US Dollar Index solid at 96.07   

United Kingdom

Theresa May’s Brexit deal has been voted by members of Parliament voting against the deal as widely expected by a tally of 432 against, versus only 202 in favor of the deal. The deal has been beaten by a vote count of 230 votes and is the worst parliamentary loss in modern history with a third of these “against votes” coming from her own party. Jeremy Corbyn the leader of the Labour Party got his chance to speak after the vote and “bag” the deal saying Theresa May was incompetent and kicked off a “vote of no confidence” against the party in the hope for a general election. May’s conservative party survived the vote by a count of 326 to 306. Tim Bale a professor at Queen Mary University of London said – May was still the leader of the party only because no-one else wants to take over to run Brexit. She has survived her own vote of no confidence recently and vows to get the job done. Cross party discussion will take place before May returning to the House of Commons on Monday. UK Retail Sales prints Friday night. The British Pound will continue to trade in both directions on news.

Europe

The Euro has fallen across the board as German growth showed the weakest figure for five years. Price fall to 1.1380 from the weekly open of 1.1460 and looks to be under pressure to travel further to the downside. The Eurozone trade figures printed with a surplus of 19 Billion which was up on expectation of 13.2 Billion with total exports of 203 Billion an increase of 1.9% based on last year’s result. European Union (EU) Brexit negotiator Michel Barnier has said the Eurozone is stepping up preparations for a no deal exit from Britain after the rejection of the 585 page draft deal was rejected this week. Fears are high that further carnage will eventuate over the coming weeks as a deal is pieced together somehow. Barnier said “whatever happens, ratification of the withdrawal agreement is necessary. It’s a precondition”. Data for the Euro is limited for the rest of the week with y/y CPI to come.

Japan

Japanese Yen holiday Monday made for thinner than normal Monday trading conditions. With Risk sentiment remains the theme based on the US Govt shutdown and falling equities not to mention the global outlook for growth optimism dropping away. Japanese yearly CPI figures released last night at 0.7% the headline was expected to to be 0.8% putting pressure on the Yen. A former chief economist of the Bank of Japan Hideo Hayakawa has said in an interview the Japanese Yen will reach its strongest level in more than six years if Japan goes into a recession, this could happen as early as mid this year. This would be a huge shift from the current 109.00 against the greenback to 70.00-80.00 according to Hayakawa. The end of 2019 forecast Yen rate is somewhere around 108.00 with it being about 105.00 at the end of 2020 but if the Yen started to slide based on a weakened economy as Hayakawa suggests the Bank of Japan could do nothing to react with the current stimulus policies.   

Canada

The Canadian Dollar has not moved from the weekly open price of 1.3270 against the greenback. Against the NZD and Aussie it has picked up minimal support inching higher based on a supportive Crude Oil correction higher but predominantly it waits for further offshore action. After rallying over 2.7% in January and erasing the losses from the terrible December the bank of Canada has lowered its growth forecast to for 2019 to 1.7% down from 2.1%. Concerns over the price of oil will continue to weigh on the currency especially as the trade war issues and still far from sorted and will remain on the backburner for a while yet based on the US shutdown. Economists suggest a hike in the cash rate over the second half of the year is factored into the curve, with the Fed looking at the possibility of keeping their cash rate on hold for the entire 2019 year we could see a markedly improved CAD soon. Monthly CPI data releases Saturday morning NZT.

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