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RBNZ Remains Key Focus

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Australia

The Reserve Bank of Australia kept the cash rate on hold at 0.75% as widely predicted by markets. The Central bank was relatively upbeat over the pending outlook pushing the AUD higher post release with Lowe suggesting the easing bias had come to an end. Benefits to the Australian economy were seen in the Trade Balance figures with a higher surplus than expected. The 7.18B figure for September printed higher than the 5.1B expected with the average monthly surplus for 2019 registering a healthy 6B. This is a large improvement from the 1.8B surplus in 2018. The RBA will ease rates further if they view it’s needed, with the next cut more likely than not still expected early 2020. This week’s focus will be on third quarter jobs data Thursday. Anything less than ideal could spell a fresh downside theme develop.

New Zealand

The New Zealand Dollar ran out of energy to the topside midweek after NZ employment data and US/China trade news spooked the risk associated currency lower. NZ unemployment came off an 11 year low of 3.9% to tick higher to 4.2% taking all the sting out of a buoyant kiwi. Rumours by the Chinese that the US had agreed to unwind all trade tariffs were confirmed incorrect by Peter Navarro director of Trade and Manufacturing which led to a fresh wave of negative sentiment towards risk currencies and the kiwi diving lower across the board. The kiwi has been the worst performer against the US Dollar over the week. Attention now turns to the Reserve Bank of New Zealand delivering their Cash rate announcement and monetary policy this Wednesday. Most analysts are expecting the RBNZ to cut 25 basis points from the record low of 1.0% with the central bank confirming recently they would adjust if required. With economic outlook skewed to the downside we would be surprised if we didn’t see a cut eventuate. With slowing GDP annualised at 2.1% in September slipping lower and business confidence looking bleak as well as jobs data a cut looks well priced into the curve, but the NZD may look to target fresh lows. Read more

Economic Releases

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Monday 11/11

  • All Day, EUR, French Bank Holiday
  • 1030pm, GBP, Prelim GDP q/q
    • Forecast 0.40%
    • Previous -0.20%

Tuesday 12/11

  • All Day, CAD, Bank Holiday
  • All Day, USD, Bank Holiday
  • 3pm, NZD, Inflation Expectations q/q
    • Previous 1.86%
  • 12th-14th, CNY, New Loans
    • Forecast 800B
    • Previous 1690B

Wednesday 13/11

  • 130pm, AUD, Wage Price Index q/q
    • Forecast 0.50%
    • Previous 0.60%
  • 2pm, NZD, Official Cash Rate
    • Forecast 0.75%
    • Previous 1.00%
  • 2pm, NZD, RBNZ Monetary Policy Statement
  • 1030pm, GBP, CPI y/y
    • Forecast 1.60%
    • Previous 1.70%

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Economic Update

Central Banks Hold Focus

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Australia

Chinese data in the form of Caixin Manufacturing PMI surprised to the upside along with strong US Non-Farm payroll figures gave the Aussie a bullish bias Monday across a raft of currencies as markets looks towards today’s pivotal RBA cash rate and policy announcement. With Australia’s third quarter CPI improving this may have done enough to push back expectations of the RBA cutting from the 0.75% until December. Certainly, with a US-China “phase one” trade deal looming this has supported the Aussie of late.

New Zealand

Markets dialled back expectations of a 25 point cut for the November 13 RBNZ meeting overnight as the assistant governor Hawkesby said he has anticipated a total of 60 points would be cut over the next 12 months- this was achieved in the August meeting when the RBNZ cut 50 basis points to 1.0%. The RBNZ will continue to watch incoming data but given third quarter CPI (16th October) surprised to the upside and the Business Confidence index showed improvement at -42.4 we see a good argument for the RBNZ to keep rates on hold. Wednesday’s employment figures are expected to represent a 0.2% rise to the workforce with the unemployment rate edging higher to 4.2% from 3.9% which will undoubtedly put pressure on the kiwi. Read more

Economic Releases

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

Monday 04/11

  • 130pm, AUD, Retail Sales m/m
    • Forecast 0.40%
    • Previous 0.40%

Tuesday 05/11

  • 730am, EUR, ECB President Lagarde Speaks
  • 430pm, AUD, RBA Statement

Wednesday 06/11

  • 230am, CAD, Trade Balance
    • Previous -1.0B
  • 4am, USD, ISM Non-Manufacturing PMI
    • Forecast 53.5
    • Previous 52.6
  • 1045am, NZD, Employment Change q/q
    • Forecast 0.20%
    • Previous 0.80%

Read more

FX Overview

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Currencies remained in limbo into Thursday’s economic data announcements.

The Federal Reserve dropped their cash rate for the third time in 2019 from 2.0% to 1.75% and downgraded market expectations of further rate cuts for now. Fed officials removed recent rhetoric from June, July and September’s meeting changing- they would “act as appropriate” for something more subtle. The statement said “The committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path”. Eight of the ten officials voted in favour of cutting the rate by 25 points but two disapproved preferring to hold rates unchanged. The Fed statement also noted that business investment and exports remained weak while household spending had increased. In summary Powell’s opening statement sums up the situation well “we believe monetary policy is in a good place, cutting to provide insurance against ongoing risks”- rates could remain steady for some time!? 

Chile have cancelled staging November’s APEC meeting in Santiago overnight after protests against inequality turned to violence. They have also cancelled a United Nations climate change conference planned for early December. This dampens any hopes of achieving a result in “phase one” of the trade agreement between China and the US where the two countries were to due to hopefully sign something at the event. We wait now to hear when leaders will meet again.       Read more

Market overview

Brexit Extension Granted

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Australia

The Australian Dollar has been one of the strongest performers over the past week despite underperforming against the greenback. Risk factors are still supporting the currency as a more positive US/China trade outlook and Brexit continue to be negotiated. With a lack of local data to publish recently markets will be amped for this week’s key quarterly CPI and Building Approvals to offer some much needed volatility.  Also tonight RBA governor will give a lecture at the University in Canberra before Wednesday’s (FOMC) Federal Open Market Committee statement and likely cut to the US benchmark interest rate. Fitch Ratings has reaffirmed Australia’s AAA rating with estimates of gross debt remaining stable at 41.0% of GDP for 2019 just below the AAA medium of 44.0%. Fitch also is forecasting GDP to slow to 1.7% in 2019 from the 2.7% in 2018.

New Zealand

New Zealand Labour day Monday creates thin trading. We have another slow week locally with only ANZ Business Confidence on the economic docket. The first Labour Day was celebrated on 28 October 1890 to mark 50 years of Samuel Parnell’s efforts for an 8 hour working day. In 1840 Parnell won the 8 hour day only in Wellington, this was extended to other NZ cities but it was only a custom not an entitlement. It wasn’t until 1899 when parliament passed the Labour Day act making the second Wednesday of October a public Holiday. The Eight Hour Day Committee was made up of S Parnell, D.P Fisher (my great, great grandfather and son of Wellington Mayor George Fisher), E Player, C Worth, H Potter and W McGill. Read more

FX Overview

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Currencies have predominantly traded sideways this week over a lack of any meaningful economic releases. The Kiwi has outperformed its rivals gaining 1.1% over the greenback in an otherwise slow week. Risk sentiment turned slightly negative into Wednesday as US corporate earnings published a tad softer and concerns over Brexit continued.

Brexit has dominated headlines with the UK parliament voting twice in the last couple of days – the first being the Brexit agreement Bill, which was passed, followed by a failed attempt to get the new bill passed within a three day window. This has resulted in another delay to the process of UK exiting the EU and the only choice is to obtain another lengthy three month extension out to 31st January 2020. Johnson is expected to call a general election prior to Christmas, however once an election is called there needs to be a minimum of five weeks stand down before polling can take place. BJ wants a general election to try and restore the Conservative Party’s ruling majority in the Commons. The next election is not due until 2022, if every opposition voted against the government it would lose by a margin of around 45 votes. This would ultimately end the stalemate and make it easier to deliver a Brexit result. Further uncertainty in the English economy and the Pound itself looks a given at this point with downside bias expected. 

The week’s economic data or event risk was fairly empty this week with most of the attention towards the ECB meeting this morning. This was the last ECB statement Mario Draghi will ever deliver before he departs as President of the European Central Bank making way for Christine Lagarde. We didn’t expect Draghi to rock the boat too much on current policy and he duly delivered a statement similar to the September meeting which featured a long term loosening of monetary policy outlined with ongoing concerns of growth risks amid fears of a German recession. Read more

Brexit On The Cusp

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Australia

The Australian Dollar had a mixed week climbing against the safe haven Japanese Yen but closing 1.7% down against the resurgent English Pound. Last week’s drop in Australia’s unemployment rate from 5.3% to 5.2% shows there is a good chance we won’t see a cut at the next monetary policy meeting on the 5th of November. But with underlying inflation expected to weaken over the coming months to below the 2% – 3% band we could easily see another slash to rates in December. Some Australian banks are now starting to price in the chances of the RBA dropping the current 0.75% rate to 0.25% by early 2020 if economic conditions don’t improve. The Reserve Bank of Australia could also start an asset buying program next year if interest rates reach the 0.5% threshold of their “lower band” effectiveness. Last week Reserve Governor Lowe said there’s very little chance we will see negative rates implying the “effective lower band” is above zero. Economic data this week is thin with only asst governor Kent speaking Wednesday.

New Zealand

The global dairy auctions Index showed a rise of 0.5% in overall dairy 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 narrower at this stage in the season ranging from $6.70 to $7.15 Prices are influenced by outcomes 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 supporting the NZD towards the end of the week. Consumer prices gained 1.5% from the previous year but were slower than the second quarter prices. If inflation continues to represent a worsening economy the RBNZ may have an argument for another cut at the 13 November RBNZ policy meeting. This week’s calendar is nude, the kiwi to get its drivers from offshore developments. Read more

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