NZ: 0800 560 006 – AU: 1800 993 100 
info@directfx.co.nz

FX Update

Contact us for a free online quote

Currency markets this week have taken on more turns than a wounded snake. US Trade policy has been high on the agenda again with most currencies up Thursday against the US Dollar.  

After President Trump said earlier in the week a deal with China would not be done until after the election in 2020 he commented that talks between the two sides are now going “very well”. Negotiations of the “phase one” deal are now expected to be completed before tariffs are set to increase on December 15. Earlier in the week the President said he would levy Argentina, France and Brazil with the aim of protecting US workers. The flow on effect of Trump’s tariff war on the world may end up hurting the competitiveness of US manufacturers further, after all this sector is currently in a recession after contracting in November for the fourth month straight driven by these tariff tensions and global growth.

As predicted the Reserve Bank of Australia left their cash rate unchanged at 0.75% with the board saying they are prepared to ease policy further should the economic situation worsen. The decision came across a little more hawkish than we have seen in the past based on improving house prices and the potential to lift household spending. Calls for the RBA to cut again as early as February will be monitored by incoming data.

The New Zealand Dollar rose across the board yesterday after the Reserve Bank of NZ will instigate plans to nearly double the amount banks are currently required to hold as capital from 8.5% to 16%. Large banks will need to hold 18% in total capital with smaller banks 14%. The amounts are a lot and equate to about 24 Billion NZ Dollars worth but Orr said “more capital also reduces the likelihood of a bank failure”. The time allocated for this was stretched out from 5 years to 7 years.

Contact us for a free online quote

Market overview

NZD Surges Higher

Contact us for a free online quote

Australia

Australian Dollar event risk will be elevated this week with a slew of important data to publish. Today’s RBA Cash rate and Monetary Policy statement will hold a lot of the attention with expectations that the RBA will leave rates unchanged at 0.75%. Two rate cuts to the cash rate in 2020 to bring it down to 0.25% is now the talking point to bring the economy more in line with growth forecasts and inflation and employment targets. This of course will be data dependant over the next few months. Yesterday’s Building Approvals release was a bad start to the week with data coming in at -0.8% for October lower than predicted. Seasonally adjusted for October (total Dwellings) fall 8.1% driven by a decrease in private dwellings of 11.3% excluding houses. Watch for strong moves in the Aussie this week but not necessarily in the same direction.

New Zealand

Despite a largely range bound week the New Zealand Dollar performed reasonably well outperforming its peers. The NZ economy of late has shown positive signs especially if we pull aside third quarter Retail Sales and Business Confidence. Depending on how negotiations roll out with China and US officials we could see further upside develop in the kiwi as we head into 2020. This week will be sparse for economic data publications which usually implies the kiwi will take its directional shifts from offshore headlines. Governor Orr speaks on Thursday about the Central Bank Capital review, we are not expecting any surprises. Read more

FX Update

Contact us for a free online quote

Currencies this week have remained in their range bound mood. We had a mix of data published Wednesday but overall markets stayed in recent formations with Thanksgiving Holiday thinning market conditions. We may see some excitement in the last couple of trading sessions prior to the close but I wouldn’t count on it. 

The greenback has strengthened this week after positive data pushed the big dollar higher. The only exception was the GBP rally after a strong Conservative party poll result. Second quarter US GDP came in at 2.1% y/y rising from the previous 1.9% with October durable goods orders also rising 0.6% m/m after estimates of -0.9%. Chicago PMI was in line with November estimates at 46.3 but note we are in a three month decline with the indicator less than the healthy 50.0 barometer. 

Risk deteriorated Thursday after President Trump signed a law in support of Hong Kong protesters. Trump said, “I signed these bills out of respect for President Xi, China and the people of Hong Kong”. This could spell disaster in the current trade negotiations with China already saying Trump’s signings are a gross interference in China’s affairs. China said earlier that if President Trump meddled in Chinese affairs they would retaliate. Read more

FX

NZD poised for breakouts

Contact us for a free online quote

Australia

The Australian Dollar had a mixed bag of success based on closing weaker than the Japanese Yen but making up ground against the falling British Pound. Iron Ore prices have not been AUD supportive over the past few months with levels falling from the March price of 123.16 to today’s 83.79. Most of the yearly deterioration in the Australian Dollar (Jan 2019 level was 0.7400 against the USD, now 0.6800) can be attributed to global tensions in the US/China trade tariff breakdown in negotiations over many months, leading to a decrease of Chinese manufacturing production output. Chinese Steel mills produce over half of the world’s steel. To add to the discomfort the AUD has fallen on recent employment which has been sluggish. RBA’s Lowe said he was prepared to ease policy further as needed, the board agreed and said a “case could be made” for a cut at the December 3 meeting. This week’s economic docket sees quarterly construction completed and Private Capital Expenditure q/q.

New Zealand

The New Zealand Dollar closed the week within 10 points of the open against the greenback, choosing to stay in recent ranges across the board on a lack of any market moving economic data. Midweek sentiment was boosted by a favourable Global Dairy Auction, which showed prices move higher including key Whole Milk and Skim Milk products.  The auction was the 5th in a row of positive prices. Fonterra has revised their 2019/2020 milk solid pay-out to between $6.55-$7.55 per kg, up 30 cents from the previous forecast of $6.25- $7.25. The world demand for whole milk powder is expected to be good for the remained of the season through to May 2020 with global WMP supplies lower than normal. This week’s focus will be on quarterly Retail Sales and ANZ Business Confidence. Read more

FX Overview

Contact us for a free online quote

This week’s movement in currencies has been choppy to say the least with no real clear direction.

Wednesday’s Global Dairy Auctions delivered good news to local farmers with good prices achieved across the board in dairy products but most importantly in Whole Milk and Skim Milk. The auction was the 5th in a row of positive prices. Fonterra has revised their 2019/2020 milk solid pay-out to between $6.55-$7.55 per kg, up 30 cents from the previous forecast of $6.25- $7.25. The world demand for whole milk powder is expected to be good for the remained of the season through to May 2020 with global WMP supplies lower than normal. 

After nearly two years of negotiations in the China/US tariff saga with many false draws along the way we seem to be no closer to actually seeing a deal agreed by both parties. Apparently progress towards “phase one” is being made but we have heard this all before. Although we have been fed news that a deal is close to being done in reality the situation resembles a scenario which could go either way as it balances over the edge of a cliff. Both sides remain divided over key trade issues yet the rumour is they are close. Who knows. Read more

Central Bank speak the focus- NZD/AUD holds 0.9380

Contact us for a free online quote

Australia

The Australian calendar looks scant this week with just the RBA releasing monetary policy minutes from the November meeting. This should not bring any surprises from recent policy and have little impact on the Aussie. Australian unemployment rose from 5.2% to 5.3% last week broadly assisting to underperform the currency. Full Time employees and part time employees both declined in the month of October. With the total number of people added to the labour force around 310,000 with an average per month increase of 25,000 this continues to be well above the employment trend of the past few years and no real cause of concern for the RBA.

New Zealand

Adrian Orr last week left the official cash rate at 1.0% and said it wasn’t his intention to surprise markets. Most expected a cut of 25 basis points with investors backtracking open short NZD positions post release when the NZD surged higher.  This made the New Zealand dollar the week’s strongest performer against its G10 peers as most other central banks are holding easing policies.  Further easing by the RBNZ could still happen if the economy warrants it.  Interest rates will need to stay at low levels for a long period until inflation reaches the midpoint of the target level of 1-3%.  The New Zealand House Price Index lifted 3.9% year on year to October nationally with the Median House Price now 607,500 up from 595,000 a jump of 2.1% m/m. This is also a 8.2% increase y/y from October 2018 figures of 561,500. Read more

FX Overview

Contact us for a free online quote

For the second time since becoming governor of the RBNZ Adrian Orr surprised markets. He kept the NZ overnight cash rate at 1.0% after cutting 50 points in August to 1.0% when markets had forecasted 1.25%.  Prior to the announcement stats showed support for a cut around 50-70%. Further stimulus to the NZ economy will happen only if economic developments warrant it, the RBNZ expects growth to drop to 2.0% in the December quarter 2019. Interest rates will need to stay at low levels for a long period until inflation reaches the midpoint of the target level of 1-3%. The NZD was broadly higher, up 70 points post release or nearly a cent against the US Dollar where it’s been drifting around over the last two days. The New Zealand House Price Index lifted 3.9% year on year to October nationally with the Median House Price now 607,500 up from 595,000 a jump of 2.1% m/m. This is also a 8.2% increase y/y from October 2018 figures of 561,500. With the Auckland market prices dropping slightly over the past 2.5 years agents are starting to see signs that asking prices are creeping up, with the region perhaps finding its mojo again.

More twists in the US-China trade talks/negotiations deteriorated risk sentiment as the two sides battle to agree on future solution. Trump said “we’ll see what happens, but it’s moving along rapidly”. He also said that if they were not able to reach a deal he is prepared to raise tariffs to Chinese imports. One of the biggest concerns is the dispute over farm products such as soybean and pork of which China has agreed to buy up an additional 50B worth annually. The problem is China is avoiding striking a “formal” deal as a way out if any further tariffs are introduced. Earlier markets had been hopeful that Trump would roll back tariffs on existing levies and not impose new tariffs of 15% set for December 15th – US importers bear the brunt of these tariffs and pass most of it onto US consumers. We suggest a stalemate for some time yet.

Australian unemployment rose slightly to 5.3% yesterday from 5.2% pushing the Australian dollar broadly lower. Figures showed declines in the number of people employed in October with full time employees down 10,300 and part time down 8,700. To put this into perspective the total over the past 12 months was around 310,000 based on an average monthly increase of 25,800 which continues to trend well above employment growth figures over the past 20 years. With the RBA targeting 4.5% unemployment they certainly have a way to go, with this data sure to raise questions on easing policy at the next RBA meeting on 3rd December.

Contact us for a free online quote

RBNZ

RBNZ Update

Contact us for a free online quote

The RBNZ left the official Cash Rate on hold at 1.00% today. Adrian Orr said the easing of cash rates over the past year will take time to filter into the economy. Further stimulus to the NZ economy will happen only if economic developments warrant it, the RBNZ expects growth to drop to 2.0% in the December quarter 2019. Interest rates will need to stay at low levels for a long period until inflation reaches the mid point of the target level of 1-3% The NZD is broadly higher, up 70 points or nearly a cent against the US Dollar.