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Central Bank speak the focus- NZD/AUD holds 0.9380

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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

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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.

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RBNZ

RBNZ Update

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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.

RBNZ Remains Key Focus

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Australia

The Reserve Bank of Australia kept the cash rate on hold at 0.75% as widely predicted by markets. The Central bank was relatively upbeat over the pending outlook pushing the AUD higher post release with Lowe suggesting the easing bias had come to an end. Benefits to the Australian economy were seen in the Trade Balance figures with a higher surplus than expected. The 7.18B figure for September printed higher than the 5.1B expected with the average monthly surplus for 2019 registering a healthy 6B. This is a large improvement from the 1.8B surplus in 2018. The RBA will ease rates further if they view it’s needed, with the next cut more likely than not still expected early 2020. This week’s focus will be on third quarter jobs data Thursday. Anything less than ideal could spell a fresh downside theme develop.

New Zealand

The New Zealand Dollar ran out of energy to the topside midweek after NZ employment data and US/China trade news spooked the risk associated currency lower. NZ unemployment came off an 11 year low of 3.9% to tick higher to 4.2% taking all the sting out of a buoyant kiwi. Rumours by the Chinese that the US had agreed to unwind all trade tariffs were confirmed incorrect by Peter Navarro director of Trade and Manufacturing which led to a fresh wave of negative sentiment towards risk currencies and the kiwi diving lower across the board. The kiwi has been the worst performer against the US Dollar over the week. Attention now turns to the Reserve Bank of New Zealand delivering their Cash rate announcement and monetary policy this Wednesday. Most analysts are expecting the RBNZ to cut 25 basis points from the record low of 1.0% with the central bank confirming recently they would adjust if required. With economic outlook skewed to the downside we would be surprised if we didn’t see a cut eventuate. With slowing GDP annualised at 2.1% in September slipping lower and business confidence looking bleak as well as jobs data a cut looks well priced into the curve, but the NZD may look to target fresh lows. Read more

Economic Releases

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Monday 11/11

  • All Day, EUR, French Bank Holiday
  • 1030pm, GBP, Prelim GDP q/q
    • Forecast 0.40%
    • Previous -0.20%

Tuesday 12/11

  • All Day, CAD, Bank Holiday
  • All Day, USD, Bank Holiday
  • 3pm, NZD, Inflation Expectations q/q
    • Previous 1.86%
  • 12th-14th, CNY, New Loans
    • Forecast 800B
    • Previous 1690B

Wednesday 13/11

  • 130pm, AUD, Wage Price Index q/q
    • Forecast 0.50%
    • Previous 0.60%
  • 2pm, NZD, Official Cash Rate
    • Forecast 0.75%
    • Previous 1.00%
  • 2pm, NZD, RBNZ Monetary Policy Statement
  • 1030pm, GBP, CPI y/y
    • Forecast 1.60%
    • Previous 1.70%

Read more

Economic Update

Central Banks Hold Focus

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Australia

Chinese data in the form of Caixin Manufacturing PMI surprised to the upside along with strong US Non-Farm payroll figures gave the Aussie a bullish bias Monday across a raft of currencies as markets looks towards today’s pivotal RBA cash rate and policy announcement. With Australia’s third quarter CPI improving this may have done enough to push back expectations of the RBA cutting from the 0.75% until December. Certainly, with a US-China “phase one” trade deal looming this has supported the Aussie of late.

New Zealand

Markets dialled back expectations of a 25 point cut for the November 13 RBNZ meeting overnight as the assistant governor Hawkesby said he has anticipated a total of 60 points would be cut over the next 12 months- this was achieved in the August meeting when the RBNZ cut 50 basis points to 1.0%. The RBNZ will continue to watch incoming data but given third quarter CPI (16th October) surprised to the upside and the Business Confidence index showed improvement at -42.4 we see a good argument for the RBNZ to keep rates on hold. Wednesday’s employment figures are expected to represent a 0.2% rise to the workforce with the unemployment rate edging higher to 4.2% from 3.9% which will undoubtedly put pressure on the kiwi. Read more

Economic Releases

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Below are the weekly economic releases for this week (NZT)

Monday 04/11

  • 130pm, AUD, Retail Sales m/m
    • Forecast 0.40%
    • Previous 0.40%

Tuesday 05/11

  • 730am, EUR, ECB President Lagarde Speaks
  • 430pm, AUD, RBA Statement

Wednesday 06/11

  • 230am, CAD, Trade Balance
    • Previous -1.0B
  • 4am, USD, ISM Non-Manufacturing PMI
    • Forecast 53.5
    • Previous 52.6
  • 1045am, NZD, Employment Change q/q
    • Forecast 0.20%
    • Previous 0.80%

Read more

FX Overview

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Currencies remained in limbo into Thursday’s economic data announcements.

The Federal Reserve dropped their cash rate for the third time in 2019 from 2.0% to 1.75% and downgraded market expectations of further rate cuts for now. Fed officials removed recent rhetoric from June, July and September’s meeting changing- they would “act as appropriate” for something more subtle. The statement said “The committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path”. Eight of the ten officials voted in favour of cutting the rate by 25 points but two disapproved preferring to hold rates unchanged. The Fed statement also noted that business investment and exports remained weak while household spending had increased. In summary Powell’s opening statement sums up the situation well “we believe monetary policy is in a good place, cutting to provide insurance against ongoing risks”- rates could remain steady for some time!? 

Chile have cancelled staging November’s APEC meeting in Santiago overnight after protests against inequality turned to violence. They have also cancelled a United Nations climate change conference planned for early December. This dampens any hopes of achieving a result in “phase one” of the trade agreement between China and the US where the two countries were to due to hopefully sign something at the event. We wait now to hear when leaders will meet again.       Read more

Market overview

Brexit Extension Granted

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Australia

The Australian Dollar has been one of the strongest performers over the past week despite underperforming against the greenback. Risk factors are still supporting the currency as a more positive US/China trade outlook and Brexit continue to be negotiated. With a lack of local data to publish recently markets will be amped for this week’s key quarterly CPI and Building Approvals to offer some much needed volatility.  Also tonight RBA governor will give a lecture at the University in Canberra before Wednesday’s (FOMC) Federal Open Market Committee statement and likely cut to the US benchmark interest rate. Fitch Ratings has reaffirmed Australia’s AAA rating with estimates of gross debt remaining stable at 41.0% of GDP for 2019 just below the AAA medium of 44.0%. Fitch also is forecasting GDP to slow to 1.7% in 2019 from the 2.7% in 2018.

New Zealand

New Zealand Labour day Monday creates thin trading. We have another slow week locally with only ANZ Business Confidence on the economic docket. The first Labour Day was celebrated on 28 October 1890 to mark 50 years of Samuel Parnell’s efforts for an 8 hour working day. In 1840 Parnell won the 8 hour day only in Wellington, this was extended to other NZ cities but it was only a custom not an entitlement. It wasn’t until 1899 when parliament passed the Labour Day act making the second Wednesday of October a public Holiday. The Eight Hour Day Committee was made up of S Parnell, D.P Fisher (my great, great grandfather and son of Wellington Mayor George Fisher), E Player, C Worth, H Potter and W McGill. Read more