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Markets Dance to Trade Moves

Market Overview:

A relatively uneventful start to the week, with little in the way of major economic releases apart from Q2 US GDP data to be released on Wednesday.
On Friday, US Fed Chairman Jerome Powell, in his first speech as Fed chief at an annual conference in Jackson Hole, Wyoming, said there was “good reason” to expect the U.S. economy to sustain its recent strength and that the “gradual process of normalization remains appropriate,” however Mr Powell also noted that inflation which is currently sitting around the Fed’s 2% goal is not showing any signs of accelerating. US equity markets pushed higher following the speech, while simultaneously the USD slipped lower.
Over the coming week, look for more rumblings on the tariff war between the US and China as the world’s two largest economies yielded little visible progress last week toward a cease-fire. Looming instead are new tariffs that President Trump has threatened to impose on some $200 billion in annual imports from China, and Beijing’s already-promised retaliation……As the standoff continues with no satisfactory resolution in sight, we expect equity market advances to slow as markets find it harder to hold onto existing gains and trading currencies like the Australian and New Zealand dollar to remain under pressure.
Just how sensitive equity markets are to trade developments was illustrated overnight, with US equity markets surging higher as the Trump administration unveiled details of an agreement that they say will replace Nafta. Shares of carmakers and parts producers in the equity benchmark surged more than 3.5%. The Dow Jones Industrial Average rose above 26,000 for the first since February. The Mexican peso rallied, and Canada’s dollar strengthened on hopes that there will be an opening for that country to join the new agreement….This trade breakthrough while capturing investor attention came amid news of yet failure of U.S. and China trade talks.

Australia

The weekend bought some respite to the AUD which has consolidated at the lower level over the 0.7300 figure against the USD.
However last week’s political woes have taken a toll , with a poll out yesterday showing the opposition Labour party 12 points ahead of the government, further illustration if needed, that the voting public have no tolerance for internal party wrangling.
The new Treasurer is Josh Frydenburg who will inherit from the outgoing Treasurer and now new PM Scott Morrison, an economy on auto-pilot as high immigration and commodity exports underpin growth, but hoppled with weak wage growth that’s cribbing the spending power of heavily-indebted households.
After hitting a low of 0.7236 against the USD last week, the Australian dollar is back up trading around the 0.7350 level buoyed by the overnight positive moves on equity markets its tone remains mildly positive with support at 0.7300 and resistance up at 0.7390.

New Zealand

The New Zealand dollar opens the week on a firmer note trading a shade under the 0.6700 mark against the USD on an increase in risk sentiment bought on by better international equity market performance and some relief on the trade front.
Today sees PM Adern on a major charm offensive with NZ business, to try and correct the sliding business confidence figures that have been instrumental in the slide in the New Zealand dollar over the past few weeks….There is little in the way of major local data releases this week and we expect that NZD direction will take its cue from offshore moves…look for current levels against the USD to hold over the next few days but expect the NZD to test support at the 0.9090 level against the AUD over the next few days.

United States

News to start the week has be centered on the potential new trade agreement between Mexico and the US. This breakthrough on trade with Mexico captured investor attention in the midst of yet another failure for U.S. and China trade talks. American stocks added to records amid strong earnings and domestic expansion, while Federal Reserve Chairman Jerome Powell’s indication the U.S. will continue to follow a path of gradual tightening was interpreted as having a more dovish tone.
There is little economic data of note out for the US this week other than the Q2 GDP release on Wednesday, but this will be the calm before the storm with a big data week next week culminating in the Non-farm payroll figures next Friday.
The more dovish tone emanating from the Fed has seen the USD weaken against both the EUR and JPY…..with the EUR/USD trading back above the old resistance level of 1.1620 and is now around 1.1680 looking to probe resistance at the 1.1752 level..

Europe

European equity markets started the week on a firmer note, although with the UK on a bank holiday volumes were lighter….also helping was a rise in German IFO business confidence, the first rise in 9 months. With the US Fed indicating a steady but slower pace of rate hikes the EUR should head higher over the week with 1.1752 providing the first resistance level on the way to the 1.1790, a break of which would signal a return to a bullish EUR market…we expect current EUR/USD levels to hold over much of this week below the 1.1750 level, as the market gets ready for a raft of US economic data next week which may provide the breakout of previous ranges.

United Kingdom

The shambles that is the Brexit negotiations continues, with little clarity from either main party on which is arguably the most important issue facing the UK in the last 50 years.
However given that significant risks also attach to the EU given a “no-deal” outcome, there now appears to be emerging a hint of inherent willingness on both sides to find a Withdrawal Deal solution. This may serve as a backstop to the degree of no-deal Brexit risks priced into the currency. But with regard the GBP and political risks, it is far too early to signal the all clear; the biggest test for the pound will be the return of a divided UK parliament from their summer recess and the upcoming Party Conference Season. A murky UK political backdrop with PM May’s position remaining weak amongst her party, should continue to put a dampener on GBP in the near-term…risk-reward may no longer favour chasing the pound much lower from current levels (1.2785 -1.2890) and GBP/USD underpinned around 1.2700 would reflect a healthy chunk of Brexit negativity…..This week sees UK money supply data on Thursday and consumer confidence Friday.

Japan

The softer USD overnight after  Fed Chairman Jerome’s comments has seen the JPY track back above the 110.00 level against the USD as the trade war rhetoric continues to grind on…Japanese economic stability may get a boost along with the retention of the monetary easing policy, as  Prime Minister Shinzo Abe launched his bid for a historic third-straight term as ruling party president, attempting to put months of scandal behind him and become Japan’s longest-serving premier…..With little in the way of domestic economic data, Yen action will mainly stem from market sentiment and USD direction over this week.

Canada

The main news for Canada this week will be developments around the trade talks and what influence the new Mexico/US trade agreement will have on the US/Canada trade relationship….Reportedly the Trump administration want Canada to be in the new trade deal, but  the U.S. seems to expect Canada to agree to everything Mexico just negotiated — and to end its politically sensitive tariff exemptions as well….it is highly unlikely that this will happen…..given a continued trade stand-off, pressure is likely to remain on the Canadian dollar to the downside.

Major Announcements last week:

  • NZ Retail Sales prints 1.1% from 0.4% expected
  • Canadian Retail Sales down at -0.2% from -0.1%
  • Crude Oil Inventories at -5.8M sending CAD higher
  • Jackson Hole Symposium finished without a hitch
  • UK Bank Holiday Monday
  • NAFTA agreement with Mexico replaced by new trade agreement

FX Update

Australia

The Australian Dollar’s bid to reach 0.7400 against the US Dollar came to a halt Thursday after political woes hit the headlines once again. The focus has returned to Canberra with leadership challenger Peter Dutton claiming support from his parliamentary party is climbing. With a history over the past few years of leadership challenges the market will be well versed to gauge the direction of the Australian Dollar. The Australian Dollar is weaker by half a cent against the greenback and could drift lower over the remainder of the week if political uncertainties continue. The Fed minutes Thursday morning showed a dovish slant which has weighed on overall risk sentiment as well. We suspect unless positive headlines eventuate from the Jackson Hole Symposium a risk off market will dominate through to the close.

New Zealand

The New Zealand Dollar battled its way through to a 0.6720 high against the US Dollar and has been a consistent performer over the week. Even poor data from the fortnightly Global Dairy Auction wasn’t enough to dampen the mood. Prices in the auction were overall lower by a total of -3.6% with whole milk powder at -2.1%. As the trade war continues on between Trump and China we will see a marked difference in global demand develop. Dairy products entering China from the US will have tariffs attached and will affect price sensitive Chinese. Other markets like NZ may get the nod to supply more products eventuating in a plus for the NZ economy. On the other hand with the US market left with product they need to flog to other markets this could also impact. Retail Sales figures Wednesday gave the NZ Dollar a boost coming in at 1.1% from the 0.4% markets were expecting. Risk sentiment will be the key driver over the rest of the week, we have already seen a shift off highs for many cross currencies and potential for the kiwi to move lower. Read more

US Dollar weakness takes crosses off lows

Equity markets traded in the red most of last week with markets remaining risk averse. Friday saw a more relaxed approach to geopolitical tensions with currency market with equities starting to post gains. US Dollar support faded as the week came to a close, the New Zealand Dollar finished up the strongest of the majors group finishing at 0.6640.  Chinese officials have received an invite from the the US to talk about trade later this month. China have confirmed they will attend a delegation led by Vice Commerce Minister Wang Shouwen to travel to America this week. Remember the next round of trade tariffs on 16 Billion worth of Chinese products kick off on the 23rd of August, China will clearly be trying to avoid this. The Turkey and Qatar central banks have signed a currency deal Friday to make sure liquidity and financial support is ongoing for the Turkish Lira. This comes after Qatar has already pledged an economic package of investment. German bank Bundersbank has come out and said the (ECB) European Central Bank is on course to reduce its current stimulus. Bundersbank also said the Turkey issues will have limited impact on German banks citing that Turkey was 16th on the list of German trading partners. In Brexit news via UK press we hear that EU migrants will be given the right to stay in the event of no-deal Brexit with fears of labour shortages. Britain will agree to enable migrants to live in the UK and continue to access the NHS to claim benefits. A no deal will rely heavily on the availability of existing labour with the event of further talks breaking down. This week we have a relatively light economic calendar, Jackson Hole Symposium in Wyoming starts Friday and could throw up its normal snippets of controversy and volatility if drama eventuates. Read more

Foreign Exchange

FX Update

Australia

The Australian Dollar has been the weakest performing currency this week with it losing ground against all the major currencies, this includes the New Zealand Dollar. Wage Price Index released at the expected 0.6% growth for the quarter to June but remains subdued with the yearly figure still at a mediocre 2.1% with this being just over of the 1.8% recorded for the same time last year. Unemployment numbers have released better than expected Thursday with the official unemployment dropping to an unexpected 5.30% cancelling out the poor number of -3,900 people added to the Australian labour force. Markets were expecting around 15,000 but the poor number has been overlooked by the new unemployment rate. Aussie Dollar received a boost jumping 40 points against the greenback.

New Zealand

Local data events have been thin this week for the New Zealand Dollar with markets awaiting NZ Producer Price Index Friday. A mixed bag with currency strength the kiwi is marginally stronger against the Pound and Euro and surprisingly the Australian Dollar. The New Zealand Dollar is one of the first currencies to capitalise on sentiment linked geopolitical news but this week we have not seen anything to get excited on. Fears on financial contagion in Turkey have kept markets at low’s with the kiwi still looking heavy. Equity markets and commodities have all traded lower with Crude oil leading the way down over 3.00%. Read more

NZD Sinks to Multi Year Lows

Market Overview:

World trade concerns continue to spook markets with investors worried about sentiment. Equity markets and risk related products traded steeply lower through to the close of the week with the DOW at 25,313, S & P 2,833 and the Nasdaq at 7,841.87. The US President seems to be lapping up recent trade developments saying “they are good and easy to win” Every time a country (mainly China) retaliates he returns swinging with new tariffs.  There is much worse to come with Trump threatening another set of barriers which could in turn total the entire coverage off almost all US products from China. Trump end goal is to create more jobs in the US by increasing production. Decades of global trade negotiations and supply chains are at risk now. The Turkish Lira has dropped to record lows this year with it falling over 40%. Tensions between the US and Turkey are at boiling point with the detention of US pastor Andrew Brunson. The Turkish president told Turks to sell the US Dollar and buy the Lira. President Trump responded by authorising to double tariffs on steel and aluminium with aluminium now to be 20% and steel a whopping 50%. US Consumer Price Index rose in July at 0.2% with the underlying trend continuing to strengthen showing a steady increase in inflation pressures. In the 12 months to July CPI has increased 2.90%. The New Zealand Dollar was double teamed, not only has it pushed to fresh lows with rising trade tensions but was sold off heavily post the RBNZ meeting Thursday. Adrian Orr delivered a statement with a dovish tone saying the official cash rate move would not happen until well into mid 2020. The kiwi currently sits at the February 2016 low of 0.6570 with the trade weighted index at 71.35- pre cash rate announcement it was trading at 72.60. Trade talk will dominate markets this week again with data to release a little light over this week. Australian employment data and US building permits will be the highlights. Read more

FX news

FX Update

Currency markets were all broadly weaker through the later stages of the week once risk markets were put on notice. The Federal Reserve held their benchmark rate unchanged at 2.00%. September 27 is the next Fed meeting which markets are expecting a hike to 2.25% with a strong possibility later in the year for another if economic data continues to print well. The Non-Farm Payroll figure came in light at 157K which surprised markets after 191K was predicted. The number for July is weaker but upward revisions to May and June totalling 59K jobs show overall its close to market predictions. The employment rate moved lower to 3.9% from 4% with wages rising 0.3% month on month inline with expectations. Trade tensions have surfaced once again with President Trump proposing a change from the 10% tariff on Chinese products to 25% on US 200B worth of Chinese products, this week this should continue to dominate markets. China have retaliated with a range of their own tariffs of 60B worth of US products with anywhere between 5% and 25% levy. The RBA and RBNZ both have Cash rate and monetary statements this week with no real expected changes to policy. The RBA could be cautious with their lingo around inflation given the recent disappointing second quarter figures. The RBNZ more than likely not change their current track with growth weakening and inflation rising, we could see further downside in the kiwi after the announcement. Brexit is still a mess with recent talks stalling. Theresa May still fears that talking up the possibility of a Brexit deal could spark a mass exodus of businesses from Great Britain. A no deal situation still remains a high chance. Read more

Rates

RBA and RBNZ OCR the focus

Market Overview:

Currency markets were all broadly weaker through the later stages of the week once risk markets were put on notice. The Federal Reserve held their benchmark rate unchanged at 2.00%. September 27 is the next Fed meeting which markets are expecting a hike to 2.25% with a strong possibility later in the year for another if economic data continues to print well. The Non-Farm Payroll figure came in light at 157K which surprised markets after 191K was predicted. The number for July is weaker but upward revisions to May and June totalling 59K jobs show overall its close to market predictions. The employment rate moved lower to 3.9% from 4% with wages rising 0.3% month on month inline with expectations. Trade tensions have surfaced once again with President Trump proposing a change from the 10% tariff on Chinese products to 25% on US 200B worth of Chinese products, this week this should continue to dominate markets. China have retaliated with a range of their own tariffs of 60B worth of US products with anywhere between 5% and 25% levy. The RBA and RBNZ both have Cash rate and monetary statements this week with no real expected changes to policy. The RBA could be cautious with their lingo around inflation given the recent disappointing second quarter figures. The RBNZ more than likely not change their current track with growth weakening and inflation rising, we could see further downside in the kiwi after the announcement. Brexit is still a mess with recent talks stalling. Theresa May still fears that talking up the possibility of a Brexit deal could spark a mass exodus of businesses from Great Britain. A no deal situation still remains a high chance. Read more

FX Update

Australia

Australian Trade Balance printed at a healthy 1.87B yesterday after figures around 0.91b were expected. The Aussie Dollar wasn’t interested in the result moving a wild 10 points against the US Dollar. The figure indicates a surplus of 1.87 Billion for June 2018 making this an increase from the 725M published in May. Monthly Retail Sales prints Today widely expected to be lower at 0.3% from the previous 0.4% Volatility will be played out with (BoE) Bank of England cash rate announcement and US Non-Farm Payroll. Risk appetite has entered the playing field as the week comes to a close and China/ Trump proposal hits the wires. The Australian Dollar will remain under pressure until next week.    

New Zealand

The New Zealand Dollar has eased lower over the week as data has released spoiling any chance of a push higher. With President Trump about to release a proposal to tariff Chinese products a hefty 25% instead of 10% will create a risk off sentiment in currency markets and undoubtedly send the kiwi to test lows. New Zealand Business confidence came in -44.9 with 45% of businesses remaining pessimistic about the coming year. Most are calling it winter and Labour Government related. Finance Minister Grant Robertson said the figure was not a surprise given recent concerns about the global economy. An interesting statement when you look at the political bias consistency over the years. Simon Bridges retaliated saying this figure is the worst in 10 years and shows how worried businesses are. NZ Employment fugues published neutral with the unemployment rate a tad higher to 4.5% from 4.4% but the number of people employed in the NZ workforce increased 0.5%. Watch for US Non-Farm Payroll to rock the boat.    Read more

finance

Markets focus on Central Bank meetings

Markets were fairly flat Friday as investors waited for second quarter US economic growth data. As we expected we saw some much needed excitement with US economic growth increasing significantly for the second quarter as GDP rose by 4.1%. The interesting aspect of this number was that it’s the first time it’s published above 4.00% since 2014. The first quarter GDP increased 2.2%. President Trump will claim a win for Trump policies even though the figure could be revised lower. We will certainly hear more on this from Trump with several media outlets recapping on the comments made when Trump said he would create more than 3% economic growth in the economy when he was elected. Hear are a couple: “Democrat elites said President Trump’s policies would throw the US into recession”, “They said a 4.0% GDP rate was impossible. It was a thing of the past”. The New York Times- So we are very probably looking at a global recession, with no end in sight”. We are by no means on the Trump wagon here but one can’t ignore the USA is on schedule for their best economic year in well over a decade. The greenback ended the week higher than most of its counterparts with the US Dollar index up slightly to 94.73 after the GDP announcement. Only the EUR was stronger after Draghi delivered a confident future assessment of the Eurozone and Junkier defused any threat of possible trade tensions. Volatility in the currency markets will start to ramp up from Tuesday with a lot of continued focus on global protectionism with global trade. We also have a heap of economic calendar risk especially in the later stages of the week with several central bank decisions to release such as Bank of Japan (BoJ) today, Bank of England (BoE) Thursday with the vote expected to be 8-1 in favour of hiking to 0.75% and also the US Federal Reserve, which are not expected to hike rates this time around until the September meeting. To end the week if this wasn’t enough to rattle your cage we also have US Non-Farm Payroll early Saturday morning. We expect the New Zealand Dollar to retest 0.6760 this week. Read more

FX Update

Australia

CPI Data released on the softer side representing 0.4% growth down from the 0.5% expected by markets. This makes the total for 2018 of 2.1% while the year on year rate is still ticking along at 2.2%. Most of the growth has been in fuel price strength, electricity and tobacco with clothing footwear and furniture having been weak. The Australian Dollar dipped to 0.7350 against the greenback but has since recovered after risk sentiment improved. The Aussie has be swayed by global developments with President Trump meeting with EU’s Juncker to work out a long term trade deal. How things play out with the impact with US and its impact on China is something the Aussie will remain sensitive to. In recent days the Australian Dollar has worked itself higher from 2018 lows.

New Zealand

With a lack of onshore economic data to release this week in New Zealand, we have seen global news dominate kiwi movement. Trade Balance Wednesday disappointed coming in at -113M versus 200M expected but surprisingly had little effect on the NZD. President Trump’s tweets have been the highlight of the week as we said earlier with the New Zealand Dollar drivers coming in the form of big picture macro themes. Commodities and equity prices improved with risk sentiment and the kiwi pushed north. The only currencies to value higher this week is the CAD and the AUD. Markets will continue to monitor updates on the global trade front, but for now the kiwi as a risk favoured currency will continue to benefit on positive headlines. Read more