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FX Update

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CUT, CUT, CUT was the word from the Reserve Bank Governor Orr Wednesday after he cut the official interest rate from 1.50% to 1.00% after experts and markets alike expected only a 25 point shift lower to 1.25%. This is the second time this year the RBNZ has dropped the cash after cutting it to 1.50% in the May meeting. The main reasons for the surprising 50 point cut were, heightening global trade tensions based on the NZ economy being heavily exposed to negotiations between the US and China and uncertainty and declining international trade. Employment is sitting at maximum capacity confirmed on Tuesday after the unemployment fell to 3.9%. The RBNZ feel to sustain this they need lower inflation. Inflation expectations have been dropping as well along with soft business confidence leading to a slowdown in hiring. The New Zealand Dollar fall out of bed on the release from 0.6540 to reach a low of 0.6377 against the greenback before retracing back to around 0.6450.  Read more

RBA and RBNZ interest rate decisions the focus

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Australia

The Australian Dollar remained under massive pressure at the close of the week. Against its counterparts it has earned the tag of the worst performing currency next to the English Pound falling 3.5% versus the Japanese Yen. Aussie CPI bounced back in the second quarter 2019 to 0.6% after a flat result in quarter one, although underlying inflation remains well below the RBA’s target of 2-3%. We think a further cut of 25 points is likely before the end of the year but not likely at today’s RBA announcement. Anything past 0.75% will depend on upcoming economic data releases with RBA’s Lowe not writing it off. Iron Ore prices have come off from late July prices around 120.00 per ton to trade around 102.00 today, but the biggest threat to the Aussie appears to be the “risk off” sentiment affecting commodity based currencies as new President Trump trade war fears surface again with the US adding new tariffs (10.0%) to 300B worth of Chinese products beginning 1 September. On the positive front Retail Sales published up on expectations Friday after a print of 0.4% from the 0.3% surprising markets. Any small boost to the AUD was overshadowed by Trump news. Crucial consumer sentiment prints tomorrow before unemployment figures Thursday.

New Zealand

The New Zealand Dollar continued its fortnightly quest lower last week dropping across the board against most currencies – over 3.4% versus the Japanese Yen. Uncertainty gripped the kiwi as punters pondered if the Fed would indeed drop rates again in 2019. The RBNZ are widely forecast to cut the cash rate to 1.25% this Wednesday with recent consensus growing that they may cut again later in the year. The ANZ Business Confidence index released at -44.3 much lower than was expected, the lowest since 2008. This data also highlighted possible weaker inflation expectation targets possibly around 2.0% whereas the RBNZ are looking towards a target of 3.0%. Prospects are not yet priced in for a 50 point cut from the current 1.5% but they soon will be. Today’s unemployment rate came in at 3.9% surprising markets after 4.2% was expected for the June quarter. The fall in the unemployment rate reflected a fall of 9,000 in the number of unemployed bringing the total unemployment number down to 109,000 in New Zealand. Read more

Weekly Economic Releases

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

Monday 05/08 

  • All Day, AUD, Bank Holiday

Tuesday 06/08

  • All Day, CAD, Bank Holiday
  • 2am, USD, ISM Non-Manufacturing PMI
    • Forecast 55.5
    • Previous 55.1
  • 1045am, NZD, Employment Change q/q
    • Forecast 0.30%
    • Previous -0.20%
  • 1045am, NZD, Unemployment Rate
    • Forecast 4.30%
    • Previous 4.20%
  • 430pm, AUD, Cash Rate
  • 430pm, AUD, RBA Rate Statement

Wednesday 07/08

  • 2pm, NZD, Official Cash Rate
    • Forecast 1.25%
    • Previous 1.50%
  • 2pm, NZD, RBNZ Monetary Policy Statement
  • 2pm, NZD, RBNZ Rate Statement
  • 3pm, NZD, RBNZ Press Conference

Read more

FX Update

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The Federal Reserve cut rates yesterday by 25 points from 2.5% to 2.25%, the first cut by the Fed since 2008. This was a combative move to further stem the global slowdown and continuing China/US trade tensions. Equities sold off over 1% after the announcement with the US Dollar strengthening to fresh highs against all major currencies. Fed chairman Powell, during the post decision statement seemed to aggravate markets with comments suggesting he wasn’t looking to pull the trigger on further easing over the next few months. Powell went on to contradict himself by not ruling out further rate cuts as he “contemplates the future path.” Also announced was the end of the $3.8T asset portfolio, or QE, two months earlier than planned – this is the stimulus that was added after the fallout of the 2008 financial crisis/ recession. Read more

AUD and NZD lead the way south

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Australia

The Australian Dollar was hammered last week just behind the hiding the New Zealand Dollar endured. It depreciated a whopping 1.9% against the US Dollar as RBA’s governor Lowe reiterated he was ready to cut if circumstances around a further softening economy prevailed. A cut next Tuesday is all but priced in with expectations growing that another cut could be planned for October if growth remained stagnant. This week’s economic excitement will be limited to Building Approvals today, quarterly CPI Wednesday and Retail Sales on Friday. It’s hard to see the AUD rebounding higher much this week as US Dollar strength should remain strong based on recent data. However if (NFP) Non-Farm Payroll Friday prints worse than reports suggest we could see some support come out of the woodwork for the AUD heading into the August 8th cash rate release.

New Zealand

The New Zealand Dollar continued to drift lower across the board throughout the week easing south to 0.6620 against the Big Dollar earning the tag as the week’s worst performing currency. NZ Trade Balance shot up to 365 Million in June from the expected 100 million markets were expecting. This is the largest June figure since 2013’s 414 million as New Zealand exported a bunch more logs and wood in June 2019 – the difference despite falling log prices. The release failed to spark a NZD revival off lows instead markets continued to sell the kiwi into the weekly close on better than expected US data printing. This week’s ANZ Business Confidence numbers will be the centre of attention the only significant economic news locally this week. Markets will instead be focusing on a slew of US data starting with Consumer Confidence, ADP Non-Farm Change followed by FOMC/Federal funds rate and ending with (NFP) Non-Farm Payroll data. With the US Dollar expected to make further advances this week the only way we may see a reversal higher in the NZD is if risk sentiment improves during the midweek US/China trade meeting between US and Chinese officials. Read more

FX Update

Alexander Boris de Pfeffel Johnson (yes, that’s his actual name) is the new Prime Minister of the United Kingdom and the new leader of the Conservative Party. A smart man educated at the prestigious Eton College he will  bring his quirky somewhat unorthodox but humorous ways to parliament. He won 66% of the Conservative party votes by defeating Jeremy Hunt. He has been compared more like Donald Trump than to Winston Churchill his hero. Johnson now must focus on one overriding immediate item – Brexit. He has insisted that the UK will leave the EU with or without a deal in place which continues to weigh heavy on the English Pound. We think the risks of a no-deal Brexit are overstated and a no-deal Brexit won’t occur on the 31st October and a subsequent referendum or general election could follow. By sacking more than half of Theresa May’s cabinet and stacking his team with “leave voters”  this will increase chances. He has also brought in his brother into Cabinet Jo Johnson who has been appointed minister of state at the Department for Business, Energy and Industry Strategy.  If Johnson manages to extend the deadline of 31 October we think the Pound will appreciate off its oversold levels across most currencies.

NZ Trade Balance shot up to 365 Million in June up from the expected 100 million markets were expecting. This is the largest June figure since 2013’s 414 million. New Zealand exported more logs and wood in June 2019, despite falling log prices, jumping up 65 Million from a year earlier, to 472 Million. The value of all goods exported rose 136 Million from June 2018 reaching 5 Billion. The kiwi doesn’t have a lot on the calendar over the following few days leading up to the RBNZ cash rate announcement. We suggest price movement will remain topish until August 8th.    Read more

US Fed officials botch communication

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Australia

The Australian Dollar continues to hold comfortably above the 0.7000 level against the USD ahead of an expected 0.25% cut in the US interest rates at next week’s US Federal Reserve meeting. However the Aussie outlook is far from certain, balancing the mixed signals of higher iron ore prices, fluctuating interest-rate differentials, and a global economic slowdown. Although conventional wisdom suggests a weaker global economic outlook ought to translate into a weaker Australian dollar, a major expansion in Australia’s terms of trade, driven by a massive spike in iron ore prices and elevated gold levels as well as expectations for aggressive interest rate cuts from the Fed, has resulted in a short-term upside trend. However labour data will hold the key for the Aussie economy as the RBA referred to this as a “bell-weather” statistic, continuing to weigh-up the potential for further rate cuts to prevent the economy stalling. With another potential RBA rate cut on the horizon at some stage, any AUD move over USD 0.7100 should be seen as a good opportunity to buy USD.

New Zealand

The New Zealand dollar continues to hold at elevated levels against both its US and Australian counterparts, however if global growth continues to slow look for an erosion of this strength especially if the case for more RBNZ action becomes stronger. Tomorrow will bring the trade balance for June, which is expected to show a small $100 mio surplus, with both imports and exports softer than the May period. Read more

NZD and AUD gains continue.

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Australia

Declining business confidence and consumer sentiment weighed on the AUD in the first half of last week, but the currency finished the week on a somewhat firmer footing thanks in large part to dovish remarks from the US Fed Chair Powell. In the wake of those remarks the AUD gained not just against the USD, but also against the GBP, EUR, CAD and JPY. That positive momentum was given a boost yesterday with Chinese activity data (industrial production and retails sales) both coming in stronger than forecast. Today’s RBA monetary policy meeting minutes may take a little wind out of the AUD’s sails, but the real focus this week will be on Australian employment data due Thursday. The market is looking for an employment gain of 9.2k with the unemployment rate to remain unchanged at 5.2%.

New Zealand

With little in the way of local data released from NZ last week, the currency traded on the back of offshore influences. The most notable of those was the dovish tone struck by US Fed Chair Powell when he testified before a congressional committee. That sent the USD lower and the NZD higher. The NZD largely outperformed most of its peers during this period to finish the week on a reasonably strong footing. Yesterday’s release of solid Chinese activity data also helped to boost the NZD across the board. This morning we have also seen the latest reading NZ inflation data and that came in bang on expectation at 0.6% q/q and 1.7% y/y. Read more

Update

US employment gains drive the USD

Australia

The Australian dollar (AUD) lost ground to the USD in the wake of US employment data on Friday night, but against many of its other peers, the AUD has outperformed. This relative outperformance comes despite last week’s interest rate cut from the Reserve Bank of Australia (RBA) and some disappointing retail sales data. In fact, it’s hard to get too negative on the outlook for the AUD, and we may well see it continue to make gains against many other currencies. A lot of negative factors are already priced into the Australian dollar and are well known. Those include a slowing housing market weighing on the broader economy and the increased global trade tensions. But countering these, we have recently seen the banks regulator confirming easier mortgage rules which should allow home buyers to borrow more. The Morrison government is also going to provide an AU$158 bn tax stimulus which will help the broader economy weather the headwinds of slowing global trade, and iron ore prices continue to trade well above $100 per tonne, hitting a 5-year high last week. This week the economic calendar is pretty light with only second tier releases, but we do have a speech from RBA Assist Gov Debelle on Friday to digest.

New Zealand

There has been little economic data of note released from New Zealand since last Tuesday’s disappointing business confidence numbers. That result helped to cement the outlook for another 0.25% interest rate cut from RBNZ at their next meeting, which is on the 7th August. There isn’t much in the way of data scheduled for release this week either, so the New Zealand dollar (NZD) will remain at the mercy of offshore developments and swings in broader risk sentiment. To that extent, a weekend article in the Hong Kong press suggested Trump and Xi are no closer to a deal than before, despite seemingly agreeing to continue with trade negotiations at the recent G20. Of more interest however is the recent sharp decline in log prices, for exports into China. This is our 3rd largest export product and prices are down some 15% or so putting real pressure on the industry. Smaller operators are already seeing layoffs and it looks like it could be a tough few months for the industry. Read more