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Economic Releases

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

Wednesday 23/10

  • 130am, CAD, Core Retail Sales m/m
    • Previous -0.10%
  • 330am, CAD, BOC Business Outlook Survey

Thursday 24/10

  • 330am, USD, Crude Oil Inventories
    • Previous 9.3m
  • 815pm, EUR, French Flash Services PMI
    • Forecast 51.6
    • Previous 51.1
  • 830pm, EUR, German Flash Manufacturing PMI
    • Forecast 42
    • Previous 41.7
  • 830pm, EUR, German Flash Service PMI
    • Forecast 52
    • Previous 51.4

Friday 25/10

  • 1245am, EUR, Main Financing Rate
    • Forecast 0.00%
    • Previous 0.00%
  • 1245am, EUR, Monetary Policy Statement
  • 130am, USD, Core Durable Goods Orders m/m
    • Forecast -0.20%
    • Previous 0.50%

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FX Overview

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The global dairy auctions concluded this week with the Index showing a rise of 0.5% for overall prices. While the Whole Milk price came in flat analysts are predicting a rise this season in the prices paid to farmers. Fonterra’s forecast is a wide range of $6.25 to $7.25 per solid, while bank forecasts are narrower at this stage in the season ranging from BNZ at $6.70 to ANZ $7.15. Prices are subject to what happens in the China/US trade war and how this affects Chinese demand. NZ Inflation for the September quarter rose 0.7% from the 0.6% markets were predicting Wednesday bringing buyers of NZD back to the table. overall consumer prices gained 1.5% from the previous year but was slower than the second quarter price of 1.4%. This data may support the argument for another cut in the 13 November RBNZ policy meeting.

Worrying signs this week for the UK economy when the unemployment rate climbed to 3.9% from 3.8% and inflation down at 1.7% for the year to September, unchanged from August but lower than the 2.1% in July showing an overall declining trend shaping. Read more

Investors warmed by US-China talks and Brexit. Not so fast.

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Australia

Australian Dollar performance last week was patchy in a market driven by risk sentiment. Through Thursday we saw a risk off mood change into “risk on” with renewed optimism of a China/US trade deal being done, at least partially. Key elements seem to be China’s commitment to purchase more US agricultural products as well as a promise on intellectual property rights as well as currency policy changes. Further talks will take place later in the year in November, until then Trump has ceased all forecasts to increase tariffs from 25% to 30% which were set to take effect this week. Consumer sentiment in Australia is at the lowest levels since July 2015. The index has dropped over 8.0% since the RBA started cutting rates in June. This drop in particularly relevant with the RBA cutting 75 points since May 7th 2019 with expectations that rate cuts are supposed to boost confidence on a personal, business and economic levels but have not. This week we have monetary policy minutes from the 1 October rate cut to 0.75% which shouldn’t present anything new.  Later in the week attention turns to Aussie Employment data Thursday with the unemployment rate expected to stay unchanged at 5.3%

New Zealand

The New Zealand Dollar traded in reasonably tight ranges over the week into Thursday when risk sentiment deteriorated sending the NZD lower across the board. This didn’t last long as news hit the wires that the US and China had agreed to a partial trade deal. Risk into Friday’s close remained positive buoyed by the “phase one’ trade deal sending the NZD off lows to post fresh highs. Against the US Dollar the kiwi traded 0.5% higher to 0.6350. The same can’t be said versus the Pound with positive Brexit headlines the NZD/GBP cross depreciated to 0.4995 an October 2018 low. On the economic docket this week is quarterly CPI Wednesday the only focus locally, 0.6% is forecast for the third quarter the same reading as the second quarter figures. Read more

Economic Releases

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

Monday 14/10

  • All Day, JPY, Bank Holiday

Tuesday 15/10

  • All Day, CAD, Bank Holiday
  • All Day, USD, Bank Holiday
  • 130pm, AUD, Monetary Policy Meeting Minutes
  • 930pm, GBP, BOE Gov Carney Speaks
  • 15h-16th, CNY, New Loans
    • Forecast 1350B
    • Previous 1210B

Wednesday 16/10

  • 1045am, NZD, CPI q/q
    • Forecast 0.60%
    • Previous 0.60%
  • 930pm, GBP, CPI y/y
    • Forecast 1.80%
    • Previous 1.70%

Read more

FX Update

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Risk tone in markets deteriorated Thursday under the strain of Brexit and US/China trade talks.

Currencies such as the kiwi and Aussie started to track lower as headlines around US trade negotiations with China in Washington lowered expectations that any significant deal would be made. Direct via Chinese media was news the Chinese delegation refuses to talk about technology transfers a key part of the negotiations for China. Higher level talks are only expected to last one day (Thursday) with the Chinese team leaving soon after. Dampening Chinese spirits ahead of the talks was the US blacklisting of 28 Chineae companies this week which upset Chinese officials. China were keen and willing to consider a partial deal based on them buying more agricultural products in return for the US to cancel some of the current tariffs in place. 

The Federal Reserve Minutes pointed to economic outlook risk management and inflation objectives. Trade tensions, geopolitics and the global economy weakening were the main points. Several policy makers suggested keeping rates steady saying forecast economic projections had not changed and would not affect ongoing expansion. Other members saw the opposite with further rate cuts needed to boost future expansion. The single best indicator of “recession” is an inverted yield curve. At the moment the short term rates cross (invert) the long term rates at around the 5 year maturity. This is particularly bad as the Fed increases short term rates this pushes the long term ones lower spooking investors. Every US recession since 1950 (all nine) have been preceded by an inversion in the yield curve. The most closely watched is the rates between the 2 year and 10 year.  Read more

FX Update

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Currency markets have continued to broadly fall lower this week off the back of weak data, trade tensions and general uncertainty around Brexit. 

The Trump administration, after winning a World Trade Organisation ruling (WTO), will press ahead with imposing tariffs on a range of imported products from the EU region. The list will be announced over the next day with the US expected to add 10% on EU aircraft and 25% on agricultural and other goods. The US government had lodged complaints of unfair Airbus subsidies as early back as 2004 over what they call illegal government subsidies by several European governments. The US has said the EU have no real basis for any retaliation with the two parties expected to meet for trade talks on October 14th. The new tariffs will take effect on October 18. Odds that we will see a further cut to the Federal Reserve official rate of 2.0% have increased after manufacturing figures continued to worsen in the month of September. The Purchasing Managers Index (PMI) dropped to the lowest level of 47.8 from August 49.1 since mid 2009. The news sent risk products lower including equity markets and commodities. Thursday mornings ADP US employment print was also below expectations devaluing the greenback. This puts particular importance on Friday’s Non-Farm Payroll release, if the ongoing weakness in the US economy spreads from manufacturing to employment and jobs are affected this could extend long term US and global economic woes creating further uncertainty. With 140,000 people expected to be added to the workforce over the September month anything and unemployment to remain stable at 3.7% anything less could indicate darker times to come. Read more

FX Update

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Australia

We should get plenty of movement this week in the Australian Dollar with a reasonably well booked economic docket. Building Approvals and Retail Sales will feature along with the main event, the Reserve Bank cash Rate and Monetary Policy Statement today at 5.30pm NZT. The RBA over the past fortnight would have been looking hard at the prospects of cutting today based on rather disappointing recent data highlighted by poor overall employment numbers. A cut is almost widely predicted with most Australian Banks bringing forward their cut forecasts, the NAB see a rate cut today and at the December meeting which would bring the benchmark rate down a historic 0.5%. CBA also have 25 point cut priced in for today. Rate cut rhetoric should keep spikes in the Aussie Dollar contained with continued easing bias dominating overall momentum to the downside.  

New Zealand

The New Zealand Dollar turned in the best weekly performance against its peers despite a choppy and mostly directionless market. Against the British Pound the kiwi was up over 2.0%. The Reserve Bank of New Zealand left the official cash rate unchanged at 1.0% but indicated that further cuts remain likely. Adrian Orr’s report was not as dovish as we were anticipating with the RBNZ expecting upcoming NZ data to firm up the need to hopefully not make a further cut. The Reserve Bank of New Zealand Annual report published Monday, Adrian Orr saying the New Zealand economy has been resilient through a period of weakening global growth and heightened global uncertainty. “Throughout the year our priorities focused on setting the foundations of significant change and setting us up for growth and innovation.” ANZ Business Confidence showed an 11-month low in September of -53.5 form the previous -52.0 and immediately put the NZD under pressure. Read more

FX Update

The Reserve Bank of New Zealand has left the official cash rate unchanged at 1.0% but indicated that further cuts remain likely. Domestic indicators and global uncertainty show the softness in the economy should continue into the second half of the year. The RBNZ sees further scope for more stimulus as the economy tries to maintain inflation and employment targets. So in summary by Orr a dovish report but not as dovish as we were predicting. GDP forecasts out to 2020 were positive by the RBNZ which was surprising. The chances of a rate cut at the 13 November policy meeting builds with Orr saying he expects upcoming NZ data to firm up the need to not make a further cut.  The New Zealand dollar and Australian Dollar traded lower after the release through Wednesday’s overnight trading sessions and into Thursday.

The President Trump impeachment news affected the risk currencies with 218 house members supporting the inquiry. With Trump’s members in the senate holding a Republican majority it is always going to be tough. The fact the democrats launched an impeachment inquiry based on no facts has damaged their credibility. Equity prices rallied off the back of the US President making comment he thought a trade deal with China would come sooner rather than later. This pushed the US dollar higher with the US leader confirming that China were already making big purchases of agriculture, pork and beef. Unfortunately it’s the intellectual property discussions which will change the game and fundamentally change global economies. Trump said “there’s a good chance we’ll make a deal with China, we are getting closer and closer”. It’s hard to believe based on previously made comments, but for now it has improved market sentiment.   Read more