NZ: 0800 560 006 – AU: 1800 993 100 
info@directfx.co.nz

NZ CPI Drops The Kiwi

Australia

The Australian Dollar consolidated around the 0.7160 area against the big dollar Tuesday off last week’s low of 0.7120 as the currency waited in limbo for the published release of the RBA monetary minutes from the latest cash rate announcement two weeks ago. The minutes highlighted the RBA board are unlikely to raise rates in the near term and a rate cut would be appropriate if inflation stays low and unemployment trended higher. The RBA would support the economy via a lower valued Australian Dollar. The AUD fall in value 20-30 points across the board on the release. Later in the week jobs data represents the only excitement on the calendar and should offer us further direction in the currency. We are expecting more of the same from February’s 8 year low in unemployment and RBA’s view of strong growth through 2019.

New Zealand

Putting aside bad news this week in the markets last Friday’s positive risk sentiment should continue deep into this week. Good Friday holiday and Easter Monday will make sure investors ease into the weekend as market volume thins out. Chinese March Trade Balance released at a huge 221 Billion after 2 Billion markets were expecting highlighting a rebound in February and a nice healthy surplus. The kiwi spiked to 0.6780 against the greenback outperforming on the Monday but eased back to 0.6750 as equities dropped a touch. CPI came in low at 0.1% after we were expecting 0.3% putting immediate pressure on the kiwi gapping it 100 points lower. Read more

FX Update

Overview 

Investors became nervous midweek after the US Fed’s March meeting minutes added vagueness regarding the direction of the next move in rates. Participants noted that the rate could shift up or down depending on upcoming economic data and other developments. US Core CPI printed a shade lighter than predicted at 0.1% from 0.2% expected putting pressure on the greenback. Earlier the IMF said the global economy was slowing and downgraded the global outlook for growth from 3.6% to 3.3% for 2019. Projections were positive growth prospects would improve in the second half of the year supported by shifts to central banks monetary policy

The EU have agreed to a Brexit extension to 31 October 2019 (6 months) as Theresa May continues to work on her 585 page withdraw agreement and a political declaration on the future of the UK. May will have extra pressure put on her between now and the exit date to stand down to allow a new party leader to enter the fray- I’m not sure this is the best solution with limited resources available. The main issue with an extension is until now government have been unable to agree on a way forward and make compromises. Fundamental disagreements between parties around what the relationship looks like between the EU and the UK have the capacity to derail yet a negotiated solution.

Here are the stats from Goldman Sachs:-

-No deal Brexit 10%

-Modified Brexit deal 50%

-No Brexit 40%- (that’s no exit at all)

The ECB left their main rate unchanged as expected at 0.0% saying current levels will remain unchanged through to the end of 2019. The ECB has pledged to continue reinvesting its bond in its massive bond buying program for an extended period of time. To support growth and liquidity the ECB released a fresh bout of stimulus on March the 7th rolling out a new cheap loans for banks – TLTRO’s (Target longer Term Refinancing Operations). The details of the new product will be communicated in the next meeting based on how economic data releases to decide on the terms of how the product would work. To summarise Draghi’s remarks – Incoming economic data confirms slow growth momentum, particularly in manufacturing in the Eurozone.

The RBA’s deputy governor Debelle confirmed they are in no hurry to start easing rates. Those in the camp of cutting rates will have to wait a while longer for such discussions with Debelle saying there is no actual expectation yet that cutting rates is needed. Debelle made direct reference to first quarter inflation which releases in two weeks on the 24th of this month. The Aussie Dollar crept higher across the board after the Debells’s talk. Federal government elections have been confirmed as the 18th May 2019.

NZD the worst performing currency in April

Australia

All in all it was a solid week for the Australian Dollar closing just above its opening price around the 0.7100 area against the greenback.  The Reserve Bank of Australia left rates unchanged at 1.50% Tuesday but gave a cautious statement to the outlook to the Australian economy for the next while. Governor Lowe gave the impression he was preparing us for lower rates after growth nearly stalled over the second half of last year. The Aussie Dollar initially dropped to 0.7050 levels against the big dollar but by midday Wednesday was pushing 0.7100. The Australian budget lowered its GDP forecast for the current financial year to 2.25% down from 2.75%. Through to 2020/21 growth is expected to rebound to 2.75%. Retail Sales published much higher than the predicted number of 0.3% to 0.8% offering relief for the dovish RBA. May the 18th is looking the most likely date when federal elections will be held. The latest poll is suggesting current government is 47% support while the opposition is 53%. This week’s calendar is not as action packed as last week with Westpac Consumer Sentiment holding market interest.

New Zealand

Who turned up to work an hour early?
Leading into the market close the NZ Dollar was the weakest performer in the major group dropping to 0.6717 against the US Dollar post (NFP) Non-Farm Payroll release. It has struggled to gain any traction after increased chances that the RBNZ could cut their interest rate in the next (May) meeting weighing the kiwi down. This week’s bias will be to the downside with a lack of local economic data price will be vulnerable to offshore shifts in sentiment. US Non-Farm Payroll for March printed up on expectations of 172,000 at 196,000 showing an improvement from the poor February numbers, while average earnings growth came in lower at 3.20% y/y from 3.40%. Unemployment remains the same at 3.80% with notable gains in healthcare and professional services.

United States

It was a sea of red on last week’s US economic calendar ending in a positive (NFP) Non-Farm Payroll release. To summarise we had poor Retail Sales, poor Durable Goods orders, weak ADP Payroll, weak ISM Manufacturing and poor Average Earnings falling to 3.2% y/y from 3.4%. Non-Farm Payroll surprised to the upside with 196,000 new people being added to the US workforce based on the 172,000 number expected. This number is extra significant after printing down in February and rebounding in March. The US Dollar closed the week out with the tag of best performer after a rally in the greenback. The news also sparked interest in equity markets the Nasdaq higher by 0.7%. The US Dollar Index closed just off its monthly high. The US and China have been chatting again around putting together a trade deal but media suggests they are no closer to closing in on a “real” deal of substance.  Larry Kudlow said “we have made great progress on the IP theft. We made progress on the forced transfer of technology”. The Chinese news agencies seem to be publishing more of a realistic view of the real situation which is to say “significant work” is to be done. US CPI m/m is released Thursday along with Producer Price index Friday.

Europe

The Euro has literally been all over the place on the charts last week closing around the 1.1220 area after opening at a similar level. At least it has halted two weeks of declines against the Aussie and the US Dollar. Recently the ECB changed its position on interest rates, saying they expect to maintain at current levels until the end of 2019 with new TLTRO’s (Target longer Term Refinancing Operations) to be announced and confirmed.  Such details as rates and dates and the structure will be revealed as to try to entice banks to add them to their lending books. The problem is the maturity dates should be tied into the slowdown in growth which is unknown. The ECB will keep rates on hold during Thursday’s Monetary policy meeting but as above expect the central bank to announce a fresh wave of liquidity raising measures.

United Kingdom

The British Pound is still extremely volatile given the recent Brexit stalemate after the string of parliamentary voting never produced a thing. Trading around the 1.3050 area against the US Dollar the Pound continues to bounce around on headline news. Theresa May continues to push her deal as April 12 nears as markets brace for more negotiations to continue this week. May’s extension request to the current deadline has received mixed results with her talks with the opposition halted. May has written to Tusk, the EU president, to ask for an extension to the 30th of June as the new exit date with an option of leaving earlier if such a deal can be agreed. Tusk has offered flexibility to May suggesting a possible extension of up to one year. Unless a new date is agreed during this week’s emergency EU summit, the UK will crash out of the EU with no deal on April 12. UK data this week is confined to Wednesday with monthly GDP and Manufacturing production.
Here are the stats from Goldman Sachs:-
-No deal Brexit 10%
-Modified Brexit deal 50%
-No Brexit 40%- (that’s no exit at all)

Japan

Japan’s household wages fell last week surprising markets and adding concerns to the already weak economy which has been losing momentum of late. Spending figures increased slightly but less than the 1.8% to 1.7% analysts were predicting. Wage growth has risen consistently in recent years with a tight labor market, but they have not risen enough to a level which has impacted or boosted inflation. Friday’s Leading Indicators Index which measures the stability of the economy published at 97.4% from the 97.3% expected, showing a decent weighting over the 11 different economic weightings that the economy is on track. Monday’s Consumer Confidence showed a different picture printing at 40.5 from the 41.5 predicted and dropping the Yen across the board. Producer figures publish Wednesday and should print well based on previous numbers from mid March.

Canada

The Canadian Dollar gave back its gains late during the weeks European and NY trading sessions. Largely due to weak employment numbers – Canadian unemployment printed unchanged at 5.8% but it was the change in the total number of people who were added to the workforce which came in well short of the 3,000 expected, shedding  -7,200 for March. This is the first decline in seven months which just about confirms that the bank of Canada will almost certainly leave rates unchanged at the April 25th BoC meeting. There is nothing going on this week on the Canadian docket except the six monthly OPEC meeting held in Vienna. Crude Oil has held up above 62.00 support and now trades at 63.34 – 0.5% higher on the Friday close and slightly down on the 63.49 high.

Major Announcements last week:

  • NZ Business Confidence prints poor
  • Aussie Building Approvals up an astounding 19.1% on predictions of -1.7% for February
  • RBA keep Cash rate unchanged at 1.50%
  • Australian Retail Sales releases at 0.8% based on predictions of 0.3%
  • Australian Trade Balance prints at 4.80B from the forecasted 3.71B
  • US Non Farm Payroll releases at 196,000 based on expectation of 172,000
  • US Unemployment remains the same at 3.8%

Market Overview

The Reserve Bank of Australia left rates unchanged at 1.50% Tuesday but gave a cautious statement to the outlook to the Australian economy for the next while. Governor Lowe gave the impression he was preparing us for lower rates after growth nearly stalled over the second half of last year. The Aussie Dollar initially dropped to 0.7050 levels against the big dollar but by midday Wednesday was pushing 0.7100. The Australian budget lowered its GDP forecast for the current financial year to 2.25% down from 2.75%. Through to 2020/21 growth is expected to rebound to 2.75%. Retail Sales published much higher than the predicted number of 0.3% to 0.8% offering relief for a dovish RBA.

US ADP Non-Farm Employment released weaker at 129,000 based on 184,000 expected for March and is usually a good gauge on what we can expect for (NFP) Non-Farm Payroll figures when they are released Saturday morning. That being said we can expect NFP to be around 175,000, anything less than this will sink the USD and push the NZD and AUD north as it did last month when the print was also weaker than expected. Earlier in the week US Retail Sales printed poor at -0.2% from 0.3% expected showing signs that the economy has shifted gears.

It’s been a quiet week on the economic docket in NZ with just business confidence printing down on expectations highlighting falling business confidence for the March quarter. The kiwi has been under pressure-easily the weakest currency this week. The global dairy auction was the 9th consecutive rise for the index with overall prices slightly up 0.8% with skim milk prices up 1.8% but whole milk surprisingly slipping down 1.3%. The NZ Minimum wage for adults rose from $16.50 per hour to 17.70 per hour on the 1st of April and is the biggest single increase ever. More than 200,000 are affected by the welcome rise but some say job losses could be the by-product of an unsustainable increase. With the government forecasting to have the minimum wage at $20 by 2021. Expect the consumer price index (CPI) to go up as a fair chunk of products and services will need to increase prices to accommodate. Read more

Signs of progress in US/China trade deal

Australia

Twas a quiet week on the docket for Australian economic releases. The Aussie remained robust outperforming all major currencies only dropping in value against the Canadian Dollar.  Job vacancies for the 3 months to February showed solid demand, with banks supporting the view that employment will continue to improve and provide a balance for weakening housing numbers this year and running into 2020. This week’s RBA cash rate announcement and statement will be the main event with mixed opinion as to whether the RBA governor Lowe will offer up a more dovish slant than his previous comments suggest. With economic outlook looking soft the RBA are already concerned about weakening 2019 growth lowering the GDP forecast from 2.0% to 1.50%. We suggest the RBA could hint at cutting rates earlier than the November expectation markets are predicting. Friday we have Retail Sales.

New Zealand

Adrian Orr left rates unchanged at 1.75% mid last week as markets were expecting but hinted at softer domestic growth and global worries increasing potential for a rate cut towards the end of this year, some say earlier. The general feel is that drops could start as early as May with 3 cuts in total to next February. We have been at historical lows since September 2016- the average cash rate over the past 34 years going back to 1985 is 7.36%. So early 2020 we could well be looking at the overnight rate at 1.0% which would be quite an incredible outcome. The NZ Minimum wage for adults rose from $16.50 per hour to 17.70 per hour yesterday and is the biggest single increase ever. More than 200,000 are affected by the welcome rise but some say job losses could be the by-product of an unsustainable increase. With the government forecasting to have the minimum wage at $20 by 2021 expect the consumer price index (CPI) to go up as some products and services will need to increase prices. With a weakening economy this will no doubt put a strain on small-medium businesses. Read more

FX Update

Free Online Quote

The RBNZ shifted its neutral stance on policy to dovish Wednesday, signalling the next move in cash rates would be down. Adrian Orr left rates unchanged at 1.75% as markets were widely expecting but hinted at softer domestic growth and global worries increasing potential for a rate cut towards the end of this year.

ANZ are forecasting drops starting in August then November and again next February. At this stage this seems a fairly extreme view as we have been at a historical low since September 2016- the average cash rate over the past 34 years going back to 1985 is 7.36%. The New Zealand Dollar slipped a whole cent to 0.6805 against the greenback on the release and has remained under pressure across the board ever since. Part of the issue for Orr is the global central banks dovish stances were putting increased upside pressure on the New Zealand Dollar which he is trying to avoid for export reasons. Read more

Trump Exonerated

Free Online Quote

Australia

The Australian Dollar (AUD) spiked to a three week high of 0.7167 against the US Dollar (USD) Thursday after Australian jobs data pushed new interest into the Aussie. A small number of jobs (4,600) were added to the workforce, a little light on expectations, but it was the unemployment rate markets focused on coming in at 4.9% from 5.0% which rallied the AUD across the main board of currencies. Friday saw a shift in sentiment with markets focusing on the long term ramifications of a dovish fed together with a lack of any real progress in the US-China trade deal. Equity markets fell sharply and risk took a beating with the Aussie opening Monday at 0.7075 against the US Dollar. A quiet week on the calendar should see the AUD float on offshore headlines.

New Zealand

The New Zealand Dollar outperformed its rivals late last week after quarterly GDP published at the expected 0.6%. Markets were overly pessimistic of a lower reading so when the release published positive the NZD pushed topside. Focus this week will be squarely on the RBNZ Cash rate announcement Wednesday and subsequent statement by Adrian Ore. Markets are currently pricing in no chance of a move in the 1.75% current cash rate, but comments around an increasingly dovish monetary policy stance by Ore will be key. If we compare February expectation of an 18% chance of a rate cut by June to 10% rate increase now through to the end of June this shows a shift to policy outlook with the RBNZ becoming more neutral in the last few weeks based on weakening economic data. ANZ Business confidence prints Thursday before governor Ore speaks again Friday. Read more

FX News

It’s been an action filled week with plenty happening but little currency movement – until Thursday. The Federal Reserve left their benchmark rate unchanged at 2.50% but it was the dovish stance which sent markets in a flurry exiting from the US Dollar. Powell has maintained his neutral position but markets were well ahead of him sensing prospect for a rate cut later this year possibly in 2020 – at the 29 January 2020 announcement markets had priced in a 47.1% probability of a cut but this has shifted to 33.7% chance with virtually no further hikes for 2019 on the radar. The US Dollar index slipped to 95.80 after Powell’s speech and looks to move lover once markets have digested reasonable prospects that growth may be capped above 2%. Powell went on to say he expected the economy to still grow at a solid pace giving mixed signals. It wouldn’t be right if we didn’t talk about trade tariffs, as we have done over the past 9 months, so here is the update – Whitehouse adviser Hassett has said trade deals are moving forward. But, Trump has come out and said, trade tariffs on Chinese imports may remain in place for a substantial period of time. NZ GDP released bang on expectations of 0.6% for the 4th quarter and took the kiwi to fresh highs across the board as analysts were expecting a negative result based on recent data. This will keep Ore happy with the prospect of a rate cut being pushed out a while longer. We think
GDP will continue to grow at around 2.5% y/y through to 2020 with no rate cut for 2019. 2020 could be a different story as projections for continued growth are skewed to the downside. Read more

Mr Speaker. My 3rd attempt at Brexit will be different.

Get a free quote online

Australia

With a lack of data published last week in Australia the Aussie Dollar followed offshore risk themes for most of the week based on Brexit and trade talk headlines. Perched around the 0.7050 area versus the US Dollar since early Friday sessions the currency looked to push higher Monday. If the Aussie can push above key 0.7120 resistance we see thin air through to 0.7200. With the shift to neutral from the RBA and slowing growth in China confirmed in recent data the Aussie has been unable to find any support higher across the board. A miss recently with Industrial Production and property slumping this week’s job’s report remains key. Recent rhetoric by the RBA confirmed they were certain of future upbeat results to come out of job numbers and lower unemployment. Monetary meeting minutes from the RBA’s 5th of March review releases today, with the all crucial jobs data Thursday. Unemployment is expected to remain unchanged at 5%

New Zealand

The New Zealand Dollar under-performed against its main rivals in the later stages of last week’s trading nearly losing 2.0% against the Pound as Brexit carnage swung markets. A very quiet week for local data the kiwi was stuck in the 0.68’s against the big Dollar. This week’s economic docket sees Current Account Wednesday and quarterly GDP Thursday. Both could move the kiwi out of current ranges if the data surprises. Last quarter showed a large -6.15B deficit, the largest in many years, with Wednesdays number expecting to come in around -3.55B, the next largest since December quarter 2017. GDP is expected to print at 0.6% positive growth if this is releases lower as it did in the December quarter we could see the kiwi hit hard. Risk markets will be guided by headlines in the ongoing Brexit saga as well as US-China trade talks which are could be quiet this week with the next trade meeting pencilled in for late April. Read more

Brexit Holds Focus

Australia

The RBA left rates unchanged at 1.50% with governor Lowe suggesting rates are consistent with GDP growth and inflation forecasts. Inflation remains low but stable and should pick up over the coming years. With all aspects of the economy showing weakening data the RBA seem to be upbeat that wage growth and low unemployment should improve in the coming months. Quarterly GDP released lower than expectations adding fuel to the depreciating AUD with Retail Sales also printing down at 0.1%. Trade Balance has surprised markets when figures showed an increase of nearly 2B to 4.55B after 2.85B was forecast. The only reason the Aussie has bounced off 0.7000 against the greenback is the buoyant Trade figure. Analysts are predicting a pick up in the Aussie towards the end of April based on seasonal import/export figures and solid iron ore values, I’m not so sure? It’s a quiet week on the calendar this week with only RBA assistant governor Debelle speaking today.

New Zealand

The New Zealand Dollar followed the Australian Dollar lower in the early stages of last week bottoming out against the US Dollar at 0.6744 before things changed. US (NFP) Non-Farm Payroll jobs data showed only a further 20,000 people were added to the workforce – the figure significantly down on the expected 180,000 number. Unemployment came in better than expected at 3.8% from 3.9% but the US Dollar traded softer allowing the kiwi to regain early week losses. Global Auction Milk prices have again posted another positive result of 3.3%, this is the seventh increase in prices since November 20th with farmgate prices set to improve over time. Another quiets week for data for the local currency suggesting outside influences will impact for the second week running. Read more