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AUD and NZD lead the way south

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Australia

The Australian Dollar was hammered last week just behind the hiding the New Zealand Dollar endured. It depreciated a whopping 1.9% against the US Dollar as RBA’s governor Lowe reiterated he was ready to cut if circumstances around a further softening economy prevailed. A cut next Tuesday is all but priced in with expectations growing that another cut could be planned for October if growth remained stagnant. This week’s economic excitement will be limited to Building Approvals today, quarterly CPI Wednesday and Retail Sales on Friday. It’s hard to see the AUD rebounding higher much this week as US Dollar strength should remain strong based on recent data. However if (NFP) Non-Farm Payroll Friday prints worse than reports suggest we could see some support come out of the woodwork for the AUD heading into the August 8th cash rate release.

New Zealand

The New Zealand Dollar continued to drift lower across the board throughout the week easing south to 0.6620 against the Big Dollar earning the tag as the week’s worst performing currency. NZ Trade Balance shot up to 365 Million in June from the expected 100 million markets were expecting. This is the largest June figure since 2013’s 414 million as New Zealand exported a bunch more logs and wood in June 2019 – the difference despite falling log prices. The release failed to spark a NZD revival off lows instead markets continued to sell the kiwi into the weekly close on better than expected US data printing. This week’s ANZ Business Confidence numbers will be the centre of attention the only significant economic news locally this week. Markets will instead be focusing on a slew of US data starting with Consumer Confidence, ADP Non-Farm Change followed by FOMC/Federal funds rate and ending with (NFP) Non-Farm Payroll data. With the US Dollar expected to make further advances this week the only way we may see a reversal higher in the NZD is if risk sentiment improves during the midweek US/China trade meeting between US and Chinese officials.

United States

The US Dept of Commerce Report Friday showed an increase of 2.1% for the second quarter GDP 2019 following on from the 3.1% push higher in the first quarter. This will clearly make the US Government happy but it won’t be enough to change the decision of the Federal Reserve when they cut rates this Thursday from 2.50% to 2.25%. GDP headlines offered up another leg of support for the big Dollar with the US Dollar Index up towards 98.00 (the yearly high) where it closed at 97.96. US and China trade talks are set to resume this week with a US trade delegation scheduled to arrive in China today for negotiations with Beijing officials. Asian and US equities will trade cautiously over the next couple of days. A breakthrough of sorts is a slim chance according to inside US sources with negotiations recently widening based on expectations from both parties and the lack of flexibility. The US Federal Reserve are poised to cut interest rates this week at their cash rate and monetary policy statement Thursday morning for the first time in a decade. Despite US growth growing at 2.1% for the second quarter downside risk are still expected to slow the economy over the coming months. Earlier Powell signalled the central bank was ready to cut rates in August to support ongoing uncertainty caused by import tariff disputes with China. NFP release is expected to reflect an additional 160k people were added to the workforce in July.

Europe

The ECB held their benchmark rate unchanged last week at their central bank meeting announcing they would keep rates as they are until at least early 2020. A significant amount of stimulus could be required at a later stage- this brings back QE into the picture again. This would be detrimental for the EUR with it teetering around the 1.1250 zone against the US Dollar currently it could trend considerably lower heading into the next monetary policy meeting on September 12. With sluggish growth starting to flow into data regularly now, the region is feeling the pressure – Targeted long-term refinancing operations will continue again in September. German and Spanish GDP print this week along with yearly CPI with figures expected to drop below 1.2%.

United Kingdom

Boris Johnson is the new Prime Minister of the United Kingdom and the new leader of the Conservative party. He won two thirds of the Conservative party votes and has compared to be more like Donald Trump over his idol Winston Churchill. His immediate focus is to try and resolve months of going no-where after Theresa May’s Brexit draft was pooh poohed not once but three times before her departure. Johnson has said publicly he doesn’t want a “no Brexit” deal but they must ditch the Irish backstop if a deal is to be struck. He has said a number of times that if the EU continues to refuse to negotiate the withdrawal agreement then he would take the UK out of the EU with or without a deal. What he fails to take note of is the 2018 EU Withdrawal Act. This states that removal of “the backstop” and a no deal Brexit would be unacceptable under the current act. If this is his only option then it may be fascinating as to how he proposes to get around this. It’s a no win situation for Johnson- remember Theresa May tried all the options and got knocked back at every turn. The Bank of England will announce their official cash rate on Thursday which is widely expected to remain unanimously at 0.75%.

Japan

Japanese Retail Sales came in at 0.5% y/y to June compared to the forecast of 0.2%. The headline put the Yen on the front foot Monday prior to Tuesday’s Unemployment Rate announcement. Unemployment published lower at 2.3% based on predictions of a 2.4% print. The Bank of Japan (BoJ) today announce their cash rate which is expected to remain at extremely low levels for some time together with their monetary statement. It will be interesting to see which route they choose ahead of the FED announcement Thursday, more than likely choosing to hold back any need for immediate stimulus and leave some in the tank for later after the FED statement. 109.00 looks fairly heavy resistance in the USDJPY suggesting a pull back towards 107.30 could be in store especially if the Fed are more dovish than neutral.

Canada

The Canadian Dollar has its best week since early June appreciating sharply against most major currencies including 1.2% against the New Zealand Dollar. Unplanned oil production outages and sanctions on Iran and Venezuela have bought about a recent drop in supply by around 8%. Crude Oil prices have been well supported because of this with price solid over the past few days around 56.10. The Canadian Dollar drifted lower on a softer run of Canadian data, while US data remains on the strong side. Monthly GDP prints Thursday before Trade Balance Friday, the focus this week. Given the lack of tier one data all eyes will be on the US/China trade headlines set to resume this week on Wednesday, I dare say this is where the CAD will derive most of its direction.

Major Announcements last week:

  • EU Refinancing Rate remains unchanged at historically low levels
  • US Core Durable Goods rise to 1.2% from 0.2%
  • US quarterly advance GDP prints at 2.1% from 1.8% expected.
  • Japanese Unemployment comes in lower at 2.3% from 2.4%

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