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FX Update

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Currency markets were generally unmoved a day or so prior to Thursday’s Federal Reserve meeting, perhaps slightly with a risk off bias. Post Fed equity markets reacted positively as the Fed is unlikely to support the overall market in the medium term which could be detrimental for positive risk sentiment as global markets risks increase. The Federal Reserve lowered its overnight rate from 2.0% to 1.75% as most thought with Powell offering up a policy statement nearly identical to the one he gave in the July meeting. Seven Fed voting officials opted for a 0.25% cut while two voted no cut, and one wanted a cut of 50 points. The difference of opinions between fed officials lends support of what may happen over the rest of the year. Low unemployment and an increase in inflation kind of suggests the fed should not be cutting while trade tensions and a slide in growth could cause further downside momentum for the economy. Fed chairman Powell commented saying the Fed would action a more extensive sequence of cuts if the economy turns down but no Fed officials see rates falling below 1.625% through to 2022. Powell said – we will stop cutting rates “when we think we have done enough”. He doesn’t see a recession or negative rates coming into play.

UK yearly inflation fell to 1.7% to August 2019 its lowest level since December 2016. The monthly fall of 0.4% from July’s 2.1% was the largest drop since 2014 and far chunkier than economists had predicted. This is expected to reflect weaker demand in the economy as consumer confidence deteriorates amid the continued Brexit uncertainty. A no deal Brexit result is still a very real risk. The Bank of England has held their overnight interest rate unchanged at 0.75% in a unanimous vote 0-9. With less than two months until the Brexit deadline as the UK gets set to leave the EU uncertainty hangs over the Bank of England. The central bank set monetary policy at a 2% target to assist with sustained growth and employment. Developments with Brexit are making the UK more volatile with GDP in the second quarter falling 0.2% is now expected to rise by 0.2% in the third quarter, the MPC said underlying growth remains slow but positive.    Read more

Crude Oil attack undermines weak global economy

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Australia

The Australian Dollar remained broadly within recent ranges propped up by easing tensions between the US and China trade tariffs.  News Friday suggested China have announced that they have excluded some agricultural products including soybean and pork from tariff levies on US imported products. Chinese data out Monday showed Industrial production missed the mark for August publishing at 4.4% after 5.2% was expected. Growth in the sector comes in at the lowest reading in 17 years. Year to date is 5.6% down on the predicted 5.8% markets were expecting. Chinese Premier Li Keqiang said it would be “very difficult” for the country to grow at an annual rate of 6% or more in the current global climate. The Aussie crosses are all lower as we head into Tuesday. The focus this week will be on Australian employment figures printing Thursday and should report a small number (15,000) of new workers were added to the Australian economy in August.

New Zealand

The New Zealand Dollar retreated off 0.6445 Friday against the greenback as the kiwi struggled to push higher. Friday’s Business PMI improved from 48.1 to 48.4 in August but remains below the 50 benchmark economic growth level showing a contraction in manufacturing activity for the second straight month. The last time the index showed a contraction in two consecutive months was October 2012. Despite fresh optimism in the trade war tensions the kiwi underperformed assisted by improving US CPI and Retail Sales releases. This week with the Federal Reserve announce their cash rate and monetary policy- this may keep the kiwi bid as expectations of a cut to 2.0% from 2.25% should put pressure on the big dollar. Read more

FX Update

It’s been 18 years since the sad events of 9/11/01 when 3,195.00 people lost their lives.

The New Zealand Dollar remains range bound this week bouncing in recent levels as the currency awaits further direction. The Australian Dollar has subtly edged higher to 0.6880 against the greenback over the week and looks to re-test 0.7000 levels if data allows having fallen through this level on the 24th of July. 

Risk markets improved Thursday when China waived import tariffs on 16 US products said to be a tactic to win over President Trump. This is the first time something odd like this has happened since the trade war started around a year ago. Products which were among the list were shrimp, fish and cancer treatment drugs. It was notable that most of these products were staple Chinese goods rather than others omitted such as soybean or meat. These are the ones which really matter – agricultural and manufacturing products produced in the states with strong Trump support. The Chinese are not yet ready to make any compromises to ditch IP theft. Midday yesterday Trump announced he will defer hiking trade tariffs on 250B worth of Chinese products from 25% to 30% until October 15, Trump tweeting- “at the request of the Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will celebrate their 70th Anniversary”. The President has again attacked Fed President Jerome Powell saying they should cut rates to zero or less. This in turn should help cushion the economy against larger fears of a global slowdown. Trump calling the leaders of the Fed “boneheads”. We may see an aggressive few months ahead for the Fed with speculation they may drop the cash rate every month through to December with growth now expected to fall to 1.5% by mid 2020, the next Fed policy meeting is 19th September.  Read more

NZD and AUD trade higher on risk appetite

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Australia

The Australian Dollar outperformed its rivals over the week with a general improvement in market risk and supporting Australian economic data. The RBA left rates unchanged at 1.0% as widely expected with Lowe delivering a speech markets perceived to be less dovish. Lowe said risks were still tilted to the downside but with uncertainty on the horizon left the door open for further rate cuts as required. Trade Balance posted a surplus of 7.291B for July a decrease of 709M seen in June but still slightly ahead of expectations of 7.2B and quarterly GDP published bang on expectations of 0.5%. Against the greenback the Aussie made a strong come back rallying to 0.6875 reversing a chunk of the past six weeks of losses. On the calendar this week we have NAB Business confidence followed by Westpac consumer confidence.

New Zealand

The New Zealand Dollar closed up every day last week against the US Dollar and the Japanese Yen, earning the tag the best performing currency from the G10. Ironic given no local economic data published, most price action was due to positive risk sentiment. Business Manufacturing Index releases on Friday the only significant data, with the index falling into contraction in July for the first time since August 2012, we are expecting a print similar with pressure mounting on the sector. Further optimism around positive trade talks by China and the US may continue to affect the kiwi this week building on its current higher form. Read more

FX Update

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The New Zealand Dollar has retained recent gains this week with no local data publishing, as markets rebounded off better risk sentiment. Equity markets responded higher into Thursday jumping over 1%. Hong Kong leader Carrie Lam has finally retracted the extradition bill that has sparked months of protesting on the streets of Hong Kong saying it was in line with public concerns bringing investors back into risk.     

The Australian Dollar has outperformed its peers with supporting data and a less than dovish RBA Tuesday. The RBA left rates unchanged at 1.0% and delivered a statement which markets perceived as less dovish than predicted. Inflation expectations are to remain under 2.0% through to 2020 with growth supported by low rates, tax cuts and a potential turnaround in the housing market. Lowe said risks are still tilted to the downside with general uncertainty and kept the door ajar for further easing. Yesterday’s Trade Balance registered a surplus of 7.291B for July a decrease of 709M seen in June but still slightly ahead of expectations of 7.2B. The news sent the Aussie higher to 0.6820 against the greenback.    Read more

A big week in store for the AUD

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Australia

Australia’s second quarter CAPEX report released showing a snapshot of business investment and what to expect in the future. The release came in at -0.5% from the expected 0.4% which was up on first quarter of -1.7% but highlighted soft business investment in firms. The result could flow through and impact this week’s GDP second quarter release on Wednesday. But first is the RBA’s monetary policy meeting on Tuesday with forecasts widely pricing in no cuts from the current 1.0% until November this year. The RBA have said they remain ready to cut if needed but with recent data they are not expected to shift their cash rate target largely based on key consideration around stable unemployment and job creation forecasts. With the Aussie trading close to long term low against the greenback we expect this week’s action to be well supported above the 0.6700 level.

New Zealand

Month end currency positioning bought fresh volatility to markets Friday with the New Zealand dollar closing bid. Yesterday’s US Holiday saw lower than expected trading volume across the board with the kiwi bouncing around the 0.6300 area. The word is the kiwi could push higher over the week on fresh anticipation of renewed upside based on general risk prospects. Summarising Orr’s comments from Wyoming last week, Orr said “We aim to keep inflation low and stable and contribute to maximum sustainable employment. This is the best we can do as a central bank to promote economic well-being. The reserve bank is among the global central banking crowd – we are not alone. But we need others to assist and understand”. He urged the government and businesses to take advantage of low interest rates and invest. Read more