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FX Update

Worldwide coronavirus cases surpasses 10.4M with over 507,000 deaths officially reported.

As most countries gear up for a second wave of coronavirus the burning question is how bad will this be? 

While most economic news recently out of the US has been positive such as Retail Sales and Home Sales is undoubtedly good news, is it sustainable? The dreaded second wave could have serious consequences on the state of mental health and economies around the world. The US govt stimulus programs only have a limited life span until the money runs out. Coronavirus is rising at an alarming rate with some states and hot spots remaining in lockdown. Payroll protection loans to small businesses and unemployment bonuses have nearly ended creating an awful time for employers as they consider whether to keep staff on or not. Where to from here? Victoria, Australia has just reported 75 new cases on Monday with the chief health officer suggesting it will get worse before it improves. Of these cases 6 are said to be community spread with most (57%) Australians expecting the virus to impact home activities, employment situations and social behavior for longer than 6 months.  Any trans- bubble earlier considered has long been abandoned in my book as we eye a long road to economic global recovery. 

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FX Update

Worldwide coronavirus cases surpasses 9.7M with over 490,000 deaths officially reported.

The RBNZ left their cash rate unchanged at 0.25% Wednesday at their policy meeting confirming again they would be leaving it for some time. The central bank left their bond purchase program also unchanged at 60B but Orr said they are prepared to provide additional stimulus when necessary. The question is whether the bank has enough stimulus in place as the country prepares for further uncertain economic times. Highlighting the pressures on export earnings due to the appreciation of the NZD implied the government could be preparing to intervene by increasing the current 60B support package in combination with selling the New Zealand Dollar. All said and done the government maintains the view that the current balance of risks remain firmly placed to the downside. Post statement the NZD plunged by around 1.0% across a range of crosses before regaining some losses during overnight sessions.  

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Covid 19 Back on the Menu

Worldwide coronavirus cases surpasses 9.18M with over 474,000 deaths officially reported.

Risk sentiment looks to be back dominating play both directions as market participants start to digest the possibilities of second wave coronavirus around the world and its implications on economies now and long term. One could argue that we are not yet out of wave one with global statistics still showing an alarming 20,000 plus cases popping up every day.  News out of Beijing China doesn’t look good after the virus was all but gone on the 9th of June with the last infected case being released from hospital, now they have over 200 cases with hundreds of flights cancelled, schools closed and residential facilities back in strict coordinated lockdown. As with the Wuhan outbreak the situation in Beijing seems to be fairly well managed, the same cannot be said for parts of the US with some states -Florida and Arizona along with California all have new cases rising exponentially. Countries like Brazil, India, Peru and Chile have all experienced a flood of new cases in the last few days, including our friends in Victoria (Australia). All this adds up to a pessimistic market tone falling in line with more distancing restrictions being ratcheted up around the globe. 

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Economic Releases

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Monday 22/06

  • 11am, AUD, RBA Gov Lowe Speaks

Tuesday 23/06

  • 3am, CAD, BOC Gov Macklem Speaks
  • 715pm, EUR, French Flash Services PMI
    • Forecast 44.9
    • Previous 31.1
  • 730pm, EUR, German Flash Manufacturing PMI
    • Forecast 41.5
    • Previous 36.6
  • 730pm, EUR, German Flash Services PMI
    • Forecast 41.7
    • Previous 32.6
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FX Update

Worldwide coronavirus cases surpasses 8.5M with over 455,000 deaths officially reported.

The New Zealand economy shrank by 1.6% in the January to March 2020 quarter, or roughly 310B New Zealand Dollars ending 9 years of growth. Expectations were the economy to shrink by 1.0% in the first quarter missing the mark. Predictions are for the economy to contract around 14.0% in the second quarter. This will mark a formal drop into recession when figures release on 18 September. Compared to first quarter 2019 the economy was down 0.2% y/y but actually grew by 1.5% in the year ending 31 March 2020. Figures show that this is the first contraction in growth since the third quarter of 2009 and the largest first quarter contraction in 29 years highlighting the horrific economic impact coronavirus has and will continue to have on the country’s growth.

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Second wave coronavirus concerns affect mood

Worldwide coronavirus cases surpasses 8M with over 435,000 deaths officially reported.

The Japanese Yen closed the week earning the top spot, beating out all other major currencies as “risk trade action” fades and sends investors and traders away from risk assets. We also saw better economic data out in Japan potentially supporting the Yen over the week. We saw a strong bounce in US Dollar performance with market reaction to shifts towards a dovish economic outlook by the Federal Reserve, reports of more clusters of coronavirus appearing around the US are also weighing in. Several months back we were talking about a possible V shaped economic global comeback/recovery meaning the economic impact would be deep but bounce back hard.

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Economic Releases

Tuesday 16/06

  • Tentative, JPY, Monetary Policy Statement
  • 6pm, GBP, Claimant Count Change
    • Previous 856.5k

Wednesday 17/06

  • 1230am, USD, Core Retail Sales
    • Forecast 5.50%
    • Previous -17.20%
  • 1230am, USD, Retail Sales m/m
    • Forecast 7.40%
    • Previous -16.40%
  • 2am, USD, Fed Chair Powell Testifies
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FX Update

Worldwide coronavirus cases surpasses 7.5M with over 423,000 deaths officially reported.

The Federal Reserve policy was unchanged maintaining its 0% to 0.25% rate in a vote 10-0 in favour. In a similar reading to April the dovish tone filtered through from Powell given how far off the target mark the economy is tracking with employment and inflation. Powell said making similarities to the Great Depression is a “bad analogy” – while second quarter economic data is the worst on record there are “so many fundamental differences” including a strong economy and healthy financial system prior to Covid-19 lockdown. Although the virus looks to recede a second wave is likely. Although the Fed made note to the improving financial conditions which has limited the need for further QE action in the short term, they clearly will rely on whatever is necessary with unlimited options at their disposal. They will continue with the 80B per month bond buying program. Fed forecasting puts GDP at -6.5% in 2020, 5% in 2021 and 3.5% in 2022. Unemployment is not as bad as previously speculated with figures to peak this year at 9.3%, 6.5% in 2021 and 5.5% ending 2022. The current tone should support further risk buying across the globe with the New Zealand Dollar and Australian Dollar forecasted to push higher yet. 

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Market Update

Worldwide coronavirus cases surpasses 7.1M with over 405,000 deaths officially reported.

It was a week of quiet economic headlines with the New Zealand Dollar taking out the top spot as the best performing currency. Risk on sentiment has driven the kiwi to fresh highs along with a number of other reasons, the main one perhaps of which is due to NZ having no new coronavirus cases over the past two weeks with the one person who had the virus recovering yesterday. So formally NZ has no coronavirus.  Re-opening trade and business has also gone a long way for boosting the mood along with recent Chinese Manufacturing data coming in better than expected. Yesterday’s Trade Balance – surplus of 62B as exports fell less than expected due to medical related purchases. Certainly markets seem to be focused on these factors rather than the continued US/China trade tensions and mass US protests taking place around the world. 

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