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FX Update

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Coronavirus has now claimed the lives of 213 people – as yet none of these have been outside China. The daily confirmed cases keep climbing and are now 9,692 as of 31 Jan, but the true figure may not be known for another week or two as China withhold the true numbers. The virus has impacted markets over the week with investors largely risk averse.  

Financial Market focus has been in the US with US company earnings results with Thursday’s snapshot of Microsoft, Facebook, Tesla and Paypal share prices all jumping higher on better than predicted revenue predictions.

The Federal Reserve voted 10-0 in favour of a remain yesterday morning for 1.75%. Comments from Powell suggested the economy has been rising at a moderate rate. Recent unemployment remains low and household spending has been rising at a decent pace. The current stance which is exactly the same as the December stance/statement from the Fed on monetary policy is appropriate and supports sustained economic activity. Powell ruled out late last year’s rate cuts forecast saying such a step would require a sustained rise above the forecasted 2% inflation target. Read more

FX News

FX Update

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Australia

The Australian Dollar is the weakest main board currency over the past 10 days as it has been sold off in risk off flows associated with the coronavirus. Although last week’s employment data highlighted an improvement for December 2019 it offered no relief for the Aussie Dollar as setbacks supporting poor market sentiment have been overwhelming. Add in bushfire costs and we still see a decent chance of a rate cut at the 4th Feb RBA meeting. Looking ahead we have quarterly CPI Wednesday forecast to be 0.6%      

New Zealand

Fourth quarter CPI figures showed a rise to 0.5%, up on the 0.4% expected sighting, increased costs in rental prices and airfares were sighted. This reinforces the RBNZ may not cut rates at the next meeting on 12 Feb given inflation targets fall within the targeted 1-3% over the next 12 months. 82 coronavirus deaths have been reported now with a further 2,700 cases confirmed in mainland China. 50 cases in 13 countries outside China have also been reported with 5 very close to home in Australia concern. This week we have no tier one data on the calendar to consider. Risk flows will dominate movement based on headline news with coronavirus. Read more

Howard Wilcox

FX Update

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Headlines surrounding the Coronavirus sent markets into a risk off tone Wednesday sending the NZD and Aussie currencies lower. Markets fears eased into Thursday when Chinese officials talked down concerns but further attempts to calm investor confidence failed into Friday with more deaths and reported cases. Equity markets and associated risk products made early gains but fell into risk off Friday.

The English Pound recovered early week losses when employment data published well. The Unemployment Rate remained stable at 3.8% along with the employment rate which is estimated at 76.3%. Average Earnings also printed up at 3.2% from 3.1% showing businesses are paying slightly more for labour. This may dampen expectations of an interest rate cut at next week’s BoE meeting with the probability of a rate cut still around 60%. Boris Johnson’s Brexit deal is one step away from becoming law after the Withdrawal Agreement Bill was passed Thursday morning. The Bill now only needs royal approval for the UK to leave the EU on the 31st of January.      Read more

FX News

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

Ian Dobbs

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

International Trade

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%

Howard Wilcox and Neven Fisher

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

Ian Dobbs

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

International Trade

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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