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FX Update

It’s been 18 years since the sad events of 9/11/01 when 3,195.00 people lost their lives.

The New Zealand Dollar remains range bound this week bouncing in recent levels as the currency awaits further direction. The Australian Dollar has subtly edged higher to 0.6880 against the greenback over the week and looks to re-test 0.7000 levels if data allows having fallen through this level on the 24th of July. 

Risk markets improved Thursday when China waived import tariffs on 16 US products said to be a tactic to win over President Trump. This is the first time something odd like this has happened since the trade war started around a year ago. Products which were among the list were shrimp, fish and cancer treatment drugs. It was notable that most of these products were staple Chinese goods rather than others omitted such as soybean or meat. These are the ones which really matter – agricultural and manufacturing products produced in the states with strong Trump support. The Chinese are not yet ready to make any compromises to ditch IP theft. Midday yesterday Trump announced he will defer hiking trade tariffs on 250B worth of Chinese products from 25% to 30% until October 15, Trump tweeting- “at the request of the Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will celebrate their 70th Anniversary”. The President has again attacked Fed President Jerome Powell saying they should cut rates to zero or less. This in turn should help cushion the economy against larger fears of a global slowdown. Trump calling the leaders of the Fed “boneheads”. We may see an aggressive few months ahead for the Fed with speculation they may drop the cash rate every month through to December with growth now expected to fall to 1.5% by mid 2020, the next Fed policy meeting is 19th September.  Read more

NZD and AUD trade higher on risk appetite

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Australia

The Australian Dollar outperformed its rivals over the week with a general improvement in market risk and supporting Australian economic data. The RBA left rates unchanged at 1.0% as widely expected with Lowe delivering a speech markets perceived to be less dovish. Lowe said risks were still tilted to the downside but with uncertainty on the horizon left the door open for further rate cuts as required. Trade Balance posted a surplus of 7.291B for July a decrease of 709M seen in June but still slightly ahead of expectations of 7.2B and quarterly GDP published bang on expectations of 0.5%. Against the greenback the Aussie made a strong come back rallying to 0.6875 reversing a chunk of the past six weeks of losses. On the calendar this week we have NAB Business confidence followed by Westpac consumer confidence.

New Zealand

The New Zealand Dollar closed up every day last week against the US Dollar and the Japanese Yen, earning the tag the best performing currency from the G10. Ironic given no local economic data published, most price action was due to positive risk sentiment. Business Manufacturing Index releases on Friday the only significant data, with the index falling into contraction in July for the first time since August 2012, we are expecting a print similar with pressure mounting on the sector. Further optimism around positive trade talks by China and the US may continue to affect the kiwi this week building on its current higher form. Read more

FX Update

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The New Zealand Dollar has retained recent gains this week with no local data publishing, as markets rebounded off better risk sentiment. Equity markets responded higher into Thursday jumping over 1%. Hong Kong leader Carrie Lam has finally retracted the extradition bill that has sparked months of protesting on the streets of Hong Kong saying it was in line with public concerns bringing investors back into risk.     

The Australian Dollar has outperformed its peers with supporting data and a less than dovish RBA Tuesday. The RBA left rates unchanged at 1.0% and delivered a statement which markets perceived as less dovish than predicted. Inflation expectations are to remain under 2.0% through to 2020 with growth supported by low rates, tax cuts and a potential turnaround in the housing market. Lowe said risks are still tilted to the downside with general uncertainty and kept the door ajar for further easing. Yesterday’s Trade Balance registered a surplus of 7.291B for July a decrease of 709M seen in June but still slightly ahead of expectations of 7.2B. The news sent the Aussie higher to 0.6820 against the greenback.    Read more

A big week in store for the AUD

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Australia

Australia’s second quarter CAPEX report released showing a snapshot of business investment and what to expect in the future. The release came in at -0.5% from the expected 0.4% which was up on first quarter of -1.7% but highlighted soft business investment in firms. The result could flow through and impact this week’s GDP second quarter release on Wednesday. But first is the RBA’s monetary policy meeting on Tuesday with forecasts widely pricing in no cuts from the current 1.0% until November this year. The RBA have said they remain ready to cut if needed but with recent data they are not expected to shift their cash rate target largely based on key consideration around stable unemployment and job creation forecasts. With the Aussie trading close to long term low against the greenback we expect this week’s action to be well supported above the 0.6700 level.

New Zealand

Month end currency positioning bought fresh volatility to markets Friday with the New Zealand dollar closing bid. Yesterday’s US Holiday saw lower than expected trading volume across the board with the kiwi bouncing around the 0.6300 area. The word is the kiwi could push higher over the week on fresh anticipation of renewed upside based on general risk prospects. Summarising Orr’s comments from Wyoming last week, Orr said “We aim to keep inflation low and stable and contribute to maximum sustainable employment. This is the best we can do as a central bank to promote economic well-being. The reserve bank is among the global central banking crowd – we are not alone. But we need others to assist and understand”. He urged the government and businesses to take advantage of low interest rates and invest. Read more

FX News

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As the ongoing trade war continues to put fear into currency markets we end the month of August as we started – with anxiety and uneasiness. The New Zealand Dollar started the month of August on the back-foot as the worst performing currency dropping over 6% against the Japanese Yen following on from July’s similar falls over 6%. The overall decline of the New Zealand Dollar represents not only a cut to 1.0% in the cash rate but a risk measure of safe haven buying of the Japanese Yen over the past several months. Data of late has been solid with employment at full roar and the unemployment at 3.9% which is the lowest since 2008.

This week’s headlines have been no different to what we have seen over the past 18 months of negotiating with both China and the US, no closer to reaching a deal. China is playing the long game with Trump as they appear to be in no hurry to reach a trade deal- their retaliations will come in the form of targeted measures as they set to reduce their reliance on US markets by strengthening its domestic market. China is preparing for a long drawn out battle which could last years. Strengthening their trade ties with other countries to hedge the downside to the US tariff dispute with Thailand, South Korea, South America and Japan. US trade negotiator Mnuchin says a China meeting will take place in Washington but didn’t say if a previously planned September catch up would happen. One tweet by the US president has the power to undue week’s talks between the two countries as we have seen already. Read more

Trade talks dominate currency flow

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Australia

With most central bank governor’s speaking at the Jackson Hole Symposium over the weekend RBA’s Lowe didn’t disappoint. Lowe pushed the notion that governments should be doing more to increase respective economic growth. He warned that central banks only had a finite amount of tools in the shed to combat slowing growth. “Monetary policy cannot deliver medium-term growth, we risk just pushing up asset prices” Lowe said. As an alternative he called for more structural reforms and investment in infrastructure. These measures have been spoken about by the Bank of Japan and the ECB in recent times – as central banks continue with easing policy in the medium term we will see more rhetoric on this. Australia is not part of the G7 with the yearly meeting taking place in France at the moment, but this year Scott Morrison has a special invitation as an observer. He will attend the digital transformation session and talk again as he did at the recent G20 about the crack down on extremist online material and social media. Building Approvals print Friday.

New Zealand

The New Zealand Dollar held off depreciating further on Friday in the wake of President Trump increasing tariffs on China and raising the stakes in the ugly trade war. The kiwi traded off its lows across the board spiking higher after Adrian Orr spoke at the Jackson Hole Symposium. He said the 50 point rate cut set on the 7th August was a pre-emptive strategy to get ahead of the curve and reduce the need of further cuts. He said the NZ economy was in a good position and would like to see businesses investing more but realised the global outlook was holding back optimism. If other central banks keep easing policy this could become a problem for the NZD if investors opted to hold the kiwi based on return. Orr said the RBNZ is ready to act as necessary “we will do whatever it takes”. This week’s calendar is quiet with only ANZ business confidence Thursday. We suggest reasonable volatility this week for the local currency with safe haven assets preferred.

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