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Update

US employment gains drive the USD

Australia

The Australian dollar (AUD) lost ground to the USD in the wake of US employment data on Friday night, but against many of its other peers, the AUD has outperformed. This relative outperformance comes despite last week’s interest rate cut from the Reserve Bank of Australia (RBA) and some disappointing retail sales data. In fact, it’s hard to get too negative on the outlook for the AUD, and we may well see it continue to make gains against many other currencies. A lot of negative factors are already priced into the Australian dollar and are well known. Those include a slowing housing market weighing on the broader economy and the increased global trade tensions. But countering these, we have recently seen the banks regulator confirming easier mortgage rules which should allow home buyers to borrow more. The Morrison government is also going to provide an AU$158 bn tax stimulus which will help the broader economy weather the headwinds of slowing global trade, and iron ore prices continue to trade well above $100 per tonne, hitting a 5-year high last week. This week the economic calendar is pretty light with only second tier releases, but we do have a speech from RBA Assist Gov Debelle on Friday to digest.

New Zealand

There has been little economic data of note released from New Zealand since last Tuesday’s disappointing business confidence numbers. That result helped to cement the outlook for another 0.25% interest rate cut from RBNZ at their next meeting, which is on the 7th August. There isn’t much in the way of data scheduled for release this week either, so the New Zealand dollar (NZD) will remain at the mercy of offshore developments and swings in broader risk sentiment. To that extent, a weekend article in the Hong Kong press suggested Trump and Xi are no closer to a deal than before, despite seemingly agreeing to continue with trade negotiations at the recent G20. Of more interest however is the recent sharp decline in log prices, for exports into China. This is our 3rd largest export product and prices are down some 15% or so putting real pressure on the industry. Smaller operators are already seeing layoffs and it looks like it could be a tough few months for the industry. Read more

FX News

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Last weekend’s G20 meeting in Osaka, Japan ended with what seemed a truce of sorts between the US and China with President Trump agreeing to not impose additional tariffs to the remaining Chinese exported products. Details from the meeting lacked any real clarity, but the few facts we have seem to have been enough to boost market sentiment this week. Although Trump said “we are on the right track” no-one really knows what this really means. The prolonged unknown is awfully detrimental for corporate sentiment as the global economy continues to slow. With no real light at the end of the tunnel the situation will continue to weigh on the corporate sector and tighten financial conditions.

The RBA has decided to cut the cash rate from 1.25% to 1.0% Tuesday. This comes in line with a cut also at the June meeting highlighting two cuts in two months, something seldom seen. The easing of the monetary policy should support local employment over the next while as recently unemployment has risen to 5.2%. The RBA also said this lower cash rate will provide greater confidence to help inflation meet medium term targets. The fallout generated by the trade dispute between China and the US is tilting global economic momentum to the downside. Australian Building Approvals printed well along with a record trade surplus at 5.75B after 5.25B was expected. The Aussie dollar has pushed up across the board, the best performing currency in the major group. Read more

Today’s RBA holds market focus, with markets split over rate cut

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Australia

Over the past few days the Australian Dollar has benefited from some positive sentiment, rallying the AUD across the board to reach to reach an eight week high of 0.7010 against the greenback. This week’s Reserve Bank of Australia is the main event on the Australian economic calendar publishing today at 4.30pm NZT. Market analysts seem to be split as to if Lowe will cut or keep the cash rate at its historical low of 1.25%. Certainly markets have had plenty of reasons to expect a cut but we are not so sure. The main RBA’s communication around employment has been clear with recent data showing a rise to 5.2% alarming analysts with the RBA looking for improvements to around 4.5%. Lowe said recently the June cut wouldn’t be enough to shift the current growth path with a cut today perhaps already been decided weeks ago. If we see a cut this will take the cash rate to 1.0% – fast running out of room for further cuts if the economy really turns pear shaped. On the flip side, a pause will allow for a more gradual cutting cycle, however with domestic and global growth forecasts to remain slow we will get ongoing debate as to further cuts, which could possibly lead to the RBA introducing unconventional monetary measures such as quantitative easing. Building Approvals and Retail Sales print later in the week and could shift the AUD.

New Zealand

the New Zealand Dollar has continued to push higher, earning the tag of most improved player of the week, with it outperformed all major currencies. With risk markets improving the kiwi gained to 72.65 or 2.5% against the safe haven Japanese Yen and 2% in the US Dollar ahead of the Friday close. This week’s economic docket is light with only (NZIER) NZ Institute of Economic Research –  Business Confidence the focus. That survey was released this morning and it printed at a 9 year low. This makes another interest rate cut at next month’s RBNZ meeting almost certain. In this environment the NZD should struggle to make further significant gains. US and Chinese officials look to have finally shaken hands at the G20 meeting over the weekend with Trump agreeing to halt a further trade war escalation by re kindling positive negotiations. The Global Dairy Auctions are Wednesday with projections we could get a similar poor result to last fortnight (-3.8%) on the index. Read more

FX Update

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The RBNZ left the official cash rate unchanged at 1.50% Wednesday. With subdued domestic growth and a weaker global economic outlook a lower cash rate should be required to meet the RBNZ goals. Domestic growth has slowed with the services sector, and house prices have continued to dampen spending. Inflation is expected to rise to around 2.0% target range supporting growth with employment to stay at the maximum sustainable levels for a while longer. Overall the RBNZ said the outlook for the domestic economy has softened compared to May projections with a lower OCR rate more than likely needed and should be cut again on the 8 August meeting. The New Zealand Dollar dropped half a cent on the release taking out a bunch of market longs (long NZD trades) to 0.6595 against the US Dollar before retracing higher to post a fresh high just shy of 0.6700. With Gold higher, Crude Oil higher and Iron Ore prices charging to 110.00 per tone the Australian Dollar also has outperformed this week, the kiwi has mostly travelled with it – the main reason we see a perky NZD after the published RBNZ dovish statement.  Read more

G20 meeting holds focus with Trump and Xi expected to exchange blows

Australia

RBA’s Lowe spoke on a panel in Canberra Monday saying “Global risk has slowed with risks skewed to the downside”. The ECB is a potential fly in the growth ointment with this region struggling more than others. He went on to say if all central banks are easing this would have no real net impact on the Australian Dollar. As market participants weigh up a July rate cut by the RBA the Aussie Dollar should remain in relatively tight ranges. If anything based on a lack of economic data this week we may see the Aussie Dollar squeeze higher. The G20 meeting in Osaka starts Friday and may affect risk currencies if the unexpected eventuates. Commodity prices are solid with Iron Ore and Gold sitting at highs of 107.00 per tone and 1400 per ounce.

New Zealand

The New Zealand Dollar squeezed higher Friday cruising into the weekend in fairly good shape. The weaker US Dollar stopped prior downside momentum with US Manufacturing releasing down on expectation. A dovish Fed has also boosted the kiwi with overall growth expectations on the slide. Market participants are expecting no change to Wednesday’s RBNZ cash rate announcement with easing to continue in the third quarter this year. Markets have already priced in an August rate cut based on global risks and lower inflation forecasts. If trade negotiations at the G20 meeting late this week go well we could see markets turn to “risk on” significantly benefiting commodity based currencies such as Aussie and Kiwi.   Trade Balance released this morning at 264M based on predictions of 200M and pushed the kiwi north across the board. Read more

Weekly Economic Releases

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

Monday 24/06

  • 1130am, AUD, RBA Gov Lowe Speaks

Wednesday 26/06

  • All Day, All, OPEC Meetings
  • 2am, USD, CB Consumer Confidence
    • Forecast 132
    • Previous 134.1
  • 5am, USD, Fed Chair Powell Speaks
  • 2pm, NZD, Official Cash Rate
    • Forecast 1.50%
    • Previous 1.50%
  • 2pm, NZD, RBNZ Rate Statement
  • 915pm, GBP, Inflation Report Hearings

Read more

FX News

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Currency markets over the week have been rather slow leading up to the Federal Reserve rate announcement yesterday. The Fed was not as dovish as we anticipated leaving rates at 2.50%, with Powell saying they would gauge incoming economic data and the trade situation with China as to whether they would cut rates at the 1 August monetary policy announcement. Some market participants are expecting two cuts this year, some none with one cut in 2020. The upcoming G20 meeting which starts on the 28th June is set to be a pivotal important meeting in Osaka with negotiations between US and Chinese officials on trade tariffs expected to resume. In the meantime, top US negotiator Lighthizer has said he would contact and speak with the Chinese Vice Premier Liu He prior to the G20 meeting to try and get a head start on proceedings. The talks have followed over six weeks of terrible relations between the US and China officials in a time when many have believed the two heavyweight countries had secured a deal both were happy with.

The New Zealand Dollar first quarter GDP printed bang on expectations of 0.6%, this was the same growth seen in the December 2018 quarter. Year on year the New Zealand economy grew by 2.5% over the previous year’s 2.3% with goods producing industries having the strongest growth in the quarter up 2%. Rightfully so the NZD climbed quickly higher after the release across all cross currencies with investors seeing fresh enthusiasm to buy NZD. We see a higher kiwi on the horizon now for these main reasons – US Fed will cut rates on the 1st of August, NZ growth looks positive after yesterday’s release, June 26th RBNZ meeting will now think twice over cutting the cash rate to 1.25% from 1.50%. If trade negotiations at the G20 meeting late next week go well we could see markets turn to “risk on” significantly benefiting commodity based currencies such as Aussie and kiwi.    Read more

Central Bank Monetary Policy Dominate the Week

Australia

The Aussie Dollar lost a tone of value last week depreciating a fair chunk against the major currencies. Versus the greenback it has fallen approx 1.30% to open the week around 0.6870. The Aussie Dollar will derive its influence this week from 3 major events. The RBA Monetary Policy Meeting Minutes today at 1.30pm NZT- where they recently cut rates by 25 points to 1.25% , Federal Reserve rate announcement and statement on Thursday and the third- RBA Lowe’s speech titled “The Labor Market and Spare Capacity”. Recently soft data coming out of China has kept the AUD under pressure as global growth outlook has deteriorated dropping the currency to fresh lows. One of the more positive economic stories out of Australia of late is the buoyant iron Ore trading levels. The Ore price has come off a high of 106.29 to 104.33 and trades at the 5th June 2014 level. It’s been volatile recently, this is nothing abnormal, but it continues to rise holding up the Aussie Dollar somewhat.

New Zealand

The New Zealand Dollar has under performed across the main board since mid last week depreciating a hefty 1.3% against the US Dollar with price dipping under 0.6500 for a short time Friday. US Retail Sales for May met expectations of 0.5% where markets appeared relieved on fears the US economy has been slowing faster than expectations. Questions will be raised on whether the Fed will cut rates later this week to 2.25% or wait until August. A further cut is planned for later this year by the Fed. This week’s focus – in fact only local data of any significance is Thursday’s first quarter GDP which will act as the main driver together with the FOMC meeting Thursday. Read more