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Central Bank’s hold Focus with BoJ, BoC and BoE

Australia

Chinese fourth quarter GDP came in on estimate at 6.0% and Industrial Production was significantly higher than the 5.9% expected at 6.9% assisting the Aussie Dollar late in the week into this morning’s trading. With Chinese imports of Iron Ore at close to record highs in December as well as local production up 12.0% at the same time in 2019 we could see a well buoyant AUD over the coming days/weeks. Also supported by the recent signing of the phase on trade deal between the US and China and talk of phase two underway we should see the AUD well supported for a while if risk sentiment allows. Data this week is limited to the Aussie Unemployment Rate and employment change.

New Zealand

Then New Zealand Consumer Price Index has been rising steadily over the past few years but not quite as fast as recent quarters. The index for the second quarter of 2019 was 1032 (plus 0.6%), rising to 1039 (plus 0.7%) for the third quarter a record quarterly high. The average quarterly rise from 1925 is 318.31 with the average over the past decade at 1018.29 according to statistics. The figures are based on a basket of products and services. Rental increases in various centres across New Zealand particularly over the past year have a big part to play. Fourth quarter CPI is due this Friday the only notable local data which is expected to come in with a 0.4% (1015) rise. Read more

FX Update

After years of negotiations and fears of a global recession the phase one trade deal between China and the US has now officially been signed. The deal includes some immediate reduction in tariffs but most will remain in place until phase two has been agreed. The 200B trade deal comprises of 40B of US agricultural products, an increase of the previous 24B the two parties were working off from 2017.  Most of this will come in the form of Soybean with China needing to buy around 80% of the total US produced supply. 77.8B in US manufacturing products like cars, aircraft and machinery, 524B in US oil and gas, 37.9 in financial services which includes protections over intellectual property.  Equity markets charged to fresh highs as a result of the agreement with overall sentiment improving with currencies mostly weirdly unchanged post headline news.

President Trump’s impeachment trial gets underway early next week which all seems a waste of time. With Trump’s republican majority in the senate there is no way he will be packing his bags. Currently the senate is made up of 53 Republicans, 45 Democrats and 2 Independents. Why the democrats pursued this is baffling – he will be acquitted, and that will be that.

The Bank of England Board has recently been discussing the prospects of cutting the cash rate on the 31st of January to allow for uncertainty and potential economic disruption post Brexit. The EU and UK have until the end of 2020 to agree on the terms for a trade agreement. Boris Johnson has vowed to “get Brexit done” by December 2020, however a government report suggests this transition period of 11 months won’t be long enough. The report also warned that businesses won’t be ready and agreeing on the terms of the new relationship with the EU will take years to sort. This is before we add in Northern Island complexities.

FX Update

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Australia

Data out of Australian has been positive to start 2020 with a “triple data boost” taking the Aussie off early 2020 lows. Last week’s Building Approvals printed a whopping 11.8% based on forecasts of 2.1% and Trade Balance rose to 5.8B surplus from the predicted 4.1B we were expecting. Also, Aussie Retail Sales closed the door on a buoyant week of support for the currency after figures showed a print of 0.9% growth for December Sales from the forecast 0.4%. This week could see further buyers of AUD push the currency over 2020 opening cross prices. Chinese Trade Balance today and later in the week when yearly GDP prints could be the main drivers. Iron Ore prices are holding steady around 93.50 from the 2020 open of 92.58. 

New Zealand

Happy New Year to all our Direct FX clients and readers.   

The 2019 festive season was less volatile than the previous year but we still had thin trading conditions with decent swings taking place. It will take a couple of weeks before currency pairs are back in full swing with regular volatility as market participants filter back into markets. The New Zealand Dollar over the course of 2019 was stronger than the Australian Dollar and the Euro but weaker than all other majors. The kiwi has started 2020 on the back foot slipping from recent highs due to risk factors. Tier one data in 2020 starts this week today when NZIER Business Confidence releases. Read more

FX Update

Happy New Year to all Direct FX clients and readers. 

The 2019 festive season was less volatile than 2018 but we still saw a fair amount of thin trading conditions with some reasonable swings taking place.

It will take a couple of weeks yet before currency pairs are back in full swing with regular volatility as market participants filter back into markets. 

The New Zealand Dollar over the course of 2019 was stronger than the Australian Dollar and the Euro but weaker than all other majors. The Euro turned out the worst performance, with the Canadian Dollar holding a staggering first place even though it’s the only currency to carry a negative yield.

The kiwi has started 2020 on the back foot underperforming on risk factors, the worst performing currency. Tier one data starts next week with NZIER Business Confidence.

We saw a big turnaround in the Global Dairy Auctions with results showing a rise of 2.8% in the overall index from mid December’s negative 5.1% with solid numbers in Butter Milk and Whole Milk Powder products. 

Thursday’s mood turned positive with equities bouncing back from losses after improved appetite for risk after Geo-Political uncertainty eased. President Trump and Iran confrontations calmed after the US assassination of Qassem Soleimani, Iran’s most powerful military leader. Iran has said they would retaliate but Trump made comment that any come back would be met by the US targeting “Iranian Culture Sites”. This implies committing war crimes – but is most likely to just be threats. 

Data out in the US showed the Trade Deficit shank to 43.1B for November making the lowest level during the Trump administration since October 2016 from 46.9B. US Manufacturing index data rose in December to 55.0- This is particularly evident given Manufacturing has been part of the backbone to the rise of the US economy over recent months. Week’s end US Non-Farm Payroll is the focus with Unemployment expected to remain at 3.5%

GBP Fireworks Ahead

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Australia

News out of Australia has been largely lacklustre over the last week with Australian markets having had to digest conflicting data- the bumper US jobs numbers on Friday, galvanising confidence in the market regarding the health of the US economy going into 2020. Then, Chinese trade balance data, which revealed a surprise fall in exports, and reminded the market that China’s economy is still feeling the ill effects of its trade-war with the United States. Business confidence data out later this afternoon will be the driver of the AUD with China PPI and CPI later in the afternoon also capable of providing further direction.

New Zealand

The NZD has continued to hold onto gains made last week, grinding to a high against the USD of 0.6576 last Friday. A minor pullback Monday after a mixed overnight session with the NZD/USD now around 0.6552 US-China trade remained in focus as markets looked for signs of progress before a fresh round of tariffs are set to take effect on 15 December. Locall focus is on tomorrow’s Half-Year Economic and Fiscal Update. The NZD looks well supported at current levels but new US tariffs on Sunday, if implemented could dent market confidence in the trading/risk currencies leading to further pullbacks in risk sentiment. Read more

Economic Releases

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

Tuesday 10/12

  • 1105am, AUD, RBA Gov Lowe Speaks
  • 11pm, EUR, German ZEW Economic Sentiment
    • Forecast 1.1
    • Previous -2.1

Wednesday 11/12

  • 11th-15th, CNY, New Loans
    • Forecast 1200B
    • Previous 661B

Read more

FX Update

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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.

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Market overview

NZD Surges Higher

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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

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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

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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