The New Zealand Dollar remains under pressure against a broad range of currencies. Softer US inflation numbers attracted buyers of the greenback despite rising predictions that the Federal Reserve will cut the benchmark cash rate again soon. US CPI for the month of May was weaker than predicted with the rate easing to 1.8% from earlier predictions of 1.9%. This has boosted investors’ expectations that the Federal Reserve will move to cut rates on June 20. US Equities traded into the red with energy stocks being dragged down by falling crude oil prices (51.30). Comments from president Trump have intensified issues in Hong Kong as the proposed extradition law intensifies with protests taking place. Markets are spooked with the Hang seng falling 1.7% Wednesday/Thursday. Markets have been trading within recent ranges and may continue to be risk averse in the lead up to the G20 summit starting 28-29th June in Japan. Certainly the unrest in Hong Kong only adds to the ongoing tensions building pre-summit.
The British Pound under performed overnight after the UK Parliament rejected Labour’s plan for a no deal Brexit. MP’s have quashed Labour’s efforts to take control, blocking attempts to stop a no-deal Brexit. Voting results were 309 versus 298 in favour. If the vote had been successful it would have given opponents a chance to legislate to stop the UK leaving with no deal on the 3st of October. Last night’s voting kicked off, Johnson won 114 votes far ahead of his next rival and well ahead of the other 9 contestants. Three were eliminated after the vote count, the next vote for the remaining 7 candidates takes place next Tuesday. Read more
The Australian Dollar had a mixed week of results, depreciating in value against the New Zealand Dollar by just over 1%, while trading in a choppy range versus the greenback. GDP published meeting expectations at 0.4% growth for the March quarter, posting a slight rise from the 0.2% December quarter. Big picture growth slowed to 1.8% making this the weakest increase since September 2009. The Australian economy continues to grow but not even close to the long term trend of 3.5%. The data falls in line with the RBA cutting their cash rate from 1.25% to 1.5% last Tuesday the first cut in nearly three years – with Phillip Lowe saying the easing should encourage hiring and investment and help lower unemployment. The RBA also hinting another rate cut is on the horizon. Friday’s Trade Balance was down on expectations at 4.87B from the 5.05B markets were expecting and capped any further upside momentum. Jobs figures will be the focus this week with unemployment expected to print at 5.1% slightly better than the 5.2% for April.
The New Zealand Dollar has closed the week outperforming the other main board currencies, stretching its legs against the Japanese Yen extending its hold 1.5 cents or by 2.3%. US Non-Farm Payroll’s poor result Friday was reasonably expected after a soft ADP earlier in the week but no-one quite expected such a reading 100k short of the numbers expected, a major miss. With rising expectations the Federal Reserve will cut rates in July at their next policy meeting we should get further dovish remarks on June 10 keeping the USD under pressure. Despite the recent risk off tone the kiwi has been well supported on general USD weakness and healthy news in the ongoing tariff wars. Over the weekend Trump suspended tariffs on Mexico indefinitely, risk markets should receive a boost early this week on the news. It’s a quiet week on the calendar locally, expect movement to be driven by offshore forces. Read more
Below are the weekly economic releases for this week (NZT)
- All day, AUD, Bank Holiday – Queens Birthday
- All day, EUR, French Bank Holiday – Whit Monday
- All day, EUR, German Bank Holiday – Whit Monday
- 830pm, GBP, GDP m/m
- Forecast -0.10%
- Previous – 0.10%
- 830pm, GBP, Manufacturing Production m/m
- Forecast -1.10%
- Previous -0.90%
- 830pm, GBP, Average Earnings Index 3m/y
- Forecast 2.90%
- Previous 3.20%
Lowe’s comments post the RBA minutes signalled a shift in mood as he succumbed to a reality of a slowing Australian Economy as he sets an initiative to cut rates starting from the 4th June policy meeting. As wage growth weakens off after the RBA hoped the labour market would strengthen, the time has arrived to come out of denial. Inflationary pressures have also dropped below forecast after expectations that it would return to its target range of around 2%. First quarter 2019 showed a fall to 1.3% y/y from 1.8% y/y in the December quarter – the lowest inflation rate since the third quarter 2016. This week the Aussie has a light economic docket with just Building Approvals and Capital Expenditure q/q Thursday. Rate cut pressures should continue to weigh on the Aussie heading into June 4 and beyond with the potential for possibly 3 cuts this year which would lower the cash rate from 1.5% to 0.75%.
The New Zealand Dollar under performed into Thursday but closed the week in the black across the major currencies. Even though Equity markets posted declines we saw resilience in the kiwi and Aussie both come off earlier lows to push higher. This doesn’t happen very often as the kiwi tracks market risk sentiment very closely, we think this was due to profit taking in the market with investors being extremely short NZD. We also think the overall market sentiment could be that NZD has been exhausted on the downside – for now. The kiwi closed the strongest currency heading into the weekend. Fonterra dropped the 2018-2019 milk solid pay-out forecast price from NZD $6.30- $6.60 to the bottom of the range to $6.30- $6.40 along with the Global Dairy Auction results posting the first index decline in 2019. Adrian Orr speaks Wednesday prior to the ANZ Business Confidence survey. Thursday’s NZ “Wellbeing” Budget will be read at 2pm. Read more
Below are the weekly economic releases for this week (NZT)
- All day, GBP, Bank Holiday
- All day, USD, Bank Holiday
- 9am, NZD, RBNZ Financial Stability Report
- 11am, NZD, RBNZ Gov Orr Speaks
- 1pm, NZD, ANZ Business Confidence
- 110pm, NZD, RBNZ Gov Orr Speaks
Markets continued the risk off theme deep into the week, the Aussie and kiwi currencies reaching fresh multi month lows. Yesterday’s Fed minutes offered up no real surprises. The minutes from the last meeting hasn’t changed the pessimistic market mood. Friday mornings poor US data, with PMI and new Home Sales, has bought home the true significance and worry of the global economic downturn. New Home Sales declined for April recording the largest m/m drop since December 2018 and signals that the housing market is on a tender footing amid the crucial spring selling session. Purchases of new home sales fell 7% in April. Folks in China and the US and becoming increasingly worried about the impacts and tensions of the tariff dispute and how it could affect the long-term recovery of growth. This is according to a new report run by the (IMF) International Monetary Fund. The IMF warned markets of being to complacent of a near term negotiated trade deal between China and the US rightfully dropping its 2019 global growth forecast from 3.5% to 3.3%. The WSJ (USD) Index dropped 0.2% to 91.11 overnight as a result with the 10 year US treasury yield also extending its decline slumping to the lowest level of 2.29% since December 2017. Closer to home, in a statement by Fonterra they have dropped the 2018-2019 milk solid price from NZD $6.30- $6.60 to the bottom of the range to $6.30- $6.40. The kiwi underperformed into Thursday along with the Global Dairy Auction results posting its first index decline in 2019. UK Prime Minister May is again on the back foot with senior Tory MP’s to request a rule change to allow a vote of no confidence in her leadership. Her departure seems imminent now with her new Brexit deal being pooh-poohed by her own party. She will outline changes to the Withdrawal Agreement Bill and has promised to give MP’s a vote on holding another referendum.
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Main event heading into the week was the surprise (unpleasant for the ALP) result of the Australian election with the Liberal Party retaining power.
The Australian Dollar was lower at the open on concerns that Australia risks getting caught in the crossfire of the trade war between its most important ally, the U.S., and biggest trading partner, China and that the Liberals were perhaps seen as less able to manage the Chinese part of this equation.
The victory, and the fact that Liberal party rules have now been amended to make it harder to topple leaders, may ensure Morrison is the first Prime Minister since 2007 to survive a full term, currently the record sits at six different leaders in 11 years.
The AUD after initially dipping to a low of 0.6864 against the USD , climbed back above the 0.6900 level to a 0.6933 high in late afternoon trading yesterday but has retreated back to the 0.6900 region on lower equity markets overnight as the risk-off tone remains. Market focus will today be on the release of the RBA minutes later this afternoon, not expected to surprise, while at the end of the day, RBA Governor Lowe, will offer a speech titled The Economic Outlook and Monetary Policy, likely to have a more relevant effect on the Aussie.
With nothing of note publishing on the economic calendar for New Zealand, the NZ Dollar was tormented by a risk averse market in the wake of stalled negotiations in the US/China trade talks. The kiwi topped out at 0.6580 against the greenback before continuing to decline the fifth week straight to fresh yearly lows around 0.6510. Ardern’s Christchurch call summit in Paris went well with global tech companies and governments agreeing to fight online right-wing extremism. Facebook for one commented saying the new “rule” would have stopped the Christchurch shooter livestreaming the horrific event. This week’s economic docket is reasonably quiet again with just March quarter Retail Sales and Trade Balance Friday to entertain us. The NZD will be largely led by offshore action in particular any ongoing speak around trade talks. Although no actual meetings are scheduled this week between US and Chinese officials, we are bound to see further media headlines. Read more
Below are the weekly economic releases for this week (NZT)
- 11am, USD, Fed Chair Powell Speaks
- 130pm, AUD, Monetary Policy Meeting Minutes
- 830pm, GBP, Inflation Report Hearings
- 1045am, NZD, Retail Sales q/q
- Forecast 0.60%
- Previous 1.70%
- 830pm, GBP, CPI y/y
- Forecast 2.20 %
- Previous 1.90%
The Reserve Bank of Australia left the cash rate unchanged last week once again, at a record low of 1.50%, in what was billed as a 50/50 call on whether they would cut or not. In the statement by RBA governor Lowe he never explicitly said they were shifting to an easing bias, but the economic signs are still there for a cut later in the year based on current fundamentals. Again pinning economic hopes of improving employment to boost the economy, Lowe will be watching the labor market over the coming months to gauge further targets. Markets are still pricing in a drop in the next 18 months – possibly two. They may not wait to long if CPI inflation continues to fall like it has in the last quarter of 2018 from 1.8% to 1.3% in the first quarter of 2019. This week’s unemployment rate and job’s numbers q/q will be key, followed by Federal elections in the weekend. Scott Morrison’s Liberal party is slightly behind labor in the polls with Bill Shorten the preferred Prime Minister.
The Reserve Bank of New Zealand surprised markets by cutting the cash rate 25 points from 1.75% to 1.50% on Wednesday in a unanimous 0-6 vote by the new monetary policy committee. Global growth has slowed since the last quarter of 2018 so a cut was necessary to support the outlook for employment and inflation. The RBNZ sees annual CPI at 1.7% by June 2020, improving off the 1.5% currently. The New Zealand Dollar initially moved significantly lower across the board but had soon strangely retraced more than 50% of the downward moves into Friday. Further risk off sentiment also hindered any topside momentum in the kiwi with US/China trade negotiations ending without any agreement. Trump clearly speaking out over Twitter at his displeasure with how the Chinese officials have handled negotiations to date with “they love ripping off America” threatening to increase the 200B tariff total to a much higher 500B if no cooperation was forthcoming. “We are right where we want to be with China”. Zero data on the calendar this week for the kiwi dollar so movement will be dictated by offshore events. Read more
Markets have been risk off for most of the week contributing to a shift lower for the kiwi and Aussie. US Equities have traded in the red with the S&P down over 2% surrounded by uncertainty in the ongoing US/China trade negotiations as we headed into Friday.
The US/China trade dispute rumbles on this week with President Trump finally losing his cool when China returned part of the negotiated draft deal with lines crossed out through most of the concessions negotiated over the past few months. The mood surrounding the trade talks, it’s fair to say, has taken a turn for the worse over the past few days after talks of a deal going from immanent to distant. Trump has responded by threatening to raise the existing 200B tariffs and impose new ones on an additional 325B worth of products. It’s unclear at this stage whether the two countries can make a deal before the new tariffs come into effect in the next day. Chinese Liu and his team will travel to Washington in last minute attempts to prevent spiralling out of control, talks will start at 5pm EST which is 9am Friday NZT. Read more