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Weekly Economic Releases

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

Monday 24/06

  • 1130am, AUD, RBA Gov Lowe Speaks

Wednesday 26/06

  • All Day, All, OPEC Meetings
  • 2am, USD, CB Consumer Confidence
    • Forecast 132
    • Previous 134.1
  • 5am, USD, Fed Chair Powell Speaks
  • 2pm, NZD, Official Cash Rate
    • Forecast 1.50%
    • Previous 1.50%
  • 2pm, NZD, RBNZ Rate Statement
  • 915pm, GBP, Inflation Report Hearings

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FX News

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Currency markets over the week have been rather slow leading up to the Federal Reserve rate announcement yesterday. The Fed was not as dovish as we anticipated leaving rates at 2.50%, with Powell saying they would gauge incoming economic data and the trade situation with China as to whether they would cut rates at the 1 August monetary policy announcement. Some market participants are expecting two cuts this year, some none with one cut in 2020. The upcoming G20 meeting which starts on the 28th June is set to be a pivotal important meeting in Osaka with negotiations between US and Chinese officials on trade tariffs expected to resume. In the meantime, top US negotiator Lighthizer has said he would contact and speak with the Chinese Vice Premier Liu He prior to the G20 meeting to try and get a head start on proceedings. The talks have followed over six weeks of terrible relations between the US and China officials in a time when many have believed the two heavyweight countries had secured a deal both were happy with.

The New Zealand Dollar first quarter GDP printed bang on expectations of 0.6%, this was the same growth seen in the December 2018 quarter. Year on year the New Zealand economy grew by 2.5% over the previous year’s 2.3% with goods producing industries having the strongest growth in the quarter up 2%. Rightfully so the NZD climbed quickly higher after the release across all cross currencies with investors seeing fresh enthusiasm to buy NZD. We see a higher kiwi on the horizon now for these main reasons – US Fed will cut rates on the 1st of August, NZ growth looks positive after yesterday’s release, June 26th RBNZ meeting will now think twice over cutting the cash rate to 1.25% from 1.50%. If trade negotiations at the G20 meeting late next week go well we could see markets turn to “risk on” significantly benefiting commodity based currencies such as Aussie and kiwi.    Read more

Central Bank Monetary Policy Dominate the Week

Australia

The Aussie Dollar lost a tone of value last week depreciating a fair chunk against the major currencies. Versus the greenback it has fallen approx 1.30% to open the week around 0.6870. The Aussie Dollar will derive its influence this week from 3 major events. The RBA Monetary Policy Meeting Minutes today at 1.30pm NZT- where they recently cut rates by 25 points to 1.25% , Federal Reserve rate announcement and statement on Thursday and the third- RBA Lowe’s speech titled “The Labor Market and Spare Capacity”. Recently soft data coming out of China has kept the AUD under pressure as global growth outlook has deteriorated dropping the currency to fresh lows. One of the more positive economic stories out of Australia of late is the buoyant iron Ore trading levels. The Ore price has come off a high of 106.29 to 104.33 and trades at the 5th June 2014 level. It’s been volatile recently, this is nothing abnormal, but it continues to rise holding up the Aussie Dollar somewhat.

New Zealand

The New Zealand Dollar has under performed across the main board since mid last week depreciating a hefty 1.3% against the US Dollar with price dipping under 0.6500 for a short time Friday. US Retail Sales for May met expectations of 0.5% where markets appeared relieved on fears the US economy has been slowing faster than expectations. Questions will be raised on whether the Fed will cut rates later this week to 2.25% or wait until August. A further cut is planned for later this year by the Fed. This week’s focus – in fact only local data of any significance is Thursday’s first quarter GDP which will act as the main driver together with the FOMC meeting Thursday. Read more

FX Overview

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

US Abandons Tariffs on Mexico

Australia

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.

New Zealand

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

Weekly Economic Releases

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

Monday 10/06

  • 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%

Tuesday 11/06

  • 830pm, GBP, Average Earnings Index 3m/y
    • Forecast 2.90%
    • Previous 3.20%

Read more

Markets focus on EU Elections, May resigns

Australia

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%.

New Zealand

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

FX Update

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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