Main event heading into the week was the surprise (unpleasant for the ALP) result of the Australian election with the Liberal Party retaining power.
The Australian Dollar was lower at the open on concerns that Australia risks getting caught in the crossfire of the trade war between its most important ally, the U.S., and biggest trading partner, China and that the Liberals were perhaps seen as less able to manage the Chinese part of this equation.
The victory, and the fact that Liberal party rules have now been amended to make it harder to topple leaders, may ensure Morrison is the first Prime Minister since 2007 to survive a full term, currently the record sits at six different leaders in 11 years.
The AUD after initially dipping to a low of 0.6864 against the USD , climbed back above the 0.6900 level to a 0.6933 high in late afternoon trading yesterday but has retreated back to the 0.6900 region on lower equity markets overnight as the risk-off tone remains. Market focus will today be on the release of the RBA minutes later this afternoon, not expected to surprise, while at the end of the day, RBA Governor Lowe, will offer a speech titled The Economic Outlook and Monetary Policy, likely to have a more relevant effect on the Aussie.
With nothing of note publishing on the economic calendar for New Zealand, the NZ Dollar was tormented by a risk averse market in the wake of stalled negotiations in the US/China trade talks. The kiwi topped out at 0.6580 against the greenback before continuing to decline the fifth week straight to fresh yearly lows around 0.6510. Ardern’s Christchurch call summit in Paris went well with global tech companies and governments agreeing to fight online right-wing extremism. Facebook for one commented saying the new “rule” would have stopped the Christchurch shooter livestreaming the horrific event. This week’s economic docket is reasonably quiet again with just March quarter Retail Sales and Trade Balance Friday to entertain us. The NZD will be largely led by offshore action in particular any ongoing speak around trade talks. Although no actual meetings are scheduled this week between US and Chinese officials, we are bound to see further media headlines. Read more
Below are the weekly economic releases for this week (NZT)
- 11am, USD, Fed Chair Powell Speaks
- 130pm, AUD, Monetary Policy Meeting Minutes
- 830pm, GBP, Inflation Report Hearings
- 1045am, NZD, Retail Sales q/q
- Forecast 0.60%
- Previous 1.70%
- 830pm, GBP, CPI y/y
- Forecast 2.20 %
- Previous 1.90%
The Reserve Bank of Australia left the cash rate unchanged last week once again, at a record low of 1.50%, in what was billed as a 50/50 call on whether they would cut or not. In the statement by RBA governor Lowe he never explicitly said they were shifting to an easing bias, but the economic signs are still there for a cut later in the year based on current fundamentals. Again pinning economic hopes of improving employment to boost the economy, Lowe will be watching the labor market over the coming months to gauge further targets. Markets are still pricing in a drop in the next 18 months – possibly two. They may not wait to long if CPI inflation continues to fall like it has in the last quarter of 2018 from 1.8% to 1.3% in the first quarter of 2019. This week’s unemployment rate and job’s numbers q/q will be key, followed by Federal elections in the weekend. Scott Morrison’s Liberal party is slightly behind labor in the polls with Bill Shorten the preferred Prime Minister.
The Reserve Bank of New Zealand surprised markets by cutting the cash rate 25 points from 1.75% to 1.50% on Wednesday in a unanimous 0-6 vote by the new monetary policy committee. Global growth has slowed since the last quarter of 2018 so a cut was necessary to support the outlook for employment and inflation. The RBNZ sees annual CPI at 1.7% by June 2020, improving off the 1.5% currently. The New Zealand Dollar initially moved significantly lower across the board but had soon strangely retraced more than 50% of the downward moves into Friday. Further risk off sentiment also hindered any topside momentum in the kiwi with US/China trade negotiations ending without any agreement. Trump clearly speaking out over Twitter at his displeasure with how the Chinese officials have handled negotiations to date with “they love ripping off America” threatening to increase the 200B tariff total to a much higher 500B if no cooperation was forthcoming. “We are right where we want to be with China”. Zero data on the calendar this week for the kiwi dollar so movement will be dictated by offshore events. Read more
Markets have been risk off for most of the week contributing to a shift lower for the kiwi and Aussie. US Equities have traded in the red with the S&P down over 2% surrounded by uncertainty in the ongoing US/China trade negotiations as we headed into Friday.
The US/China trade dispute rumbles on this week with President Trump finally losing his cool when China returned part of the negotiated draft deal with lines crossed out through most of the concessions negotiated over the past few months. The mood surrounding the trade talks, it’s fair to say, has taken a turn for the worse over the past few days after talks of a deal going from immanent to distant. Trump has responded by threatening to raise the existing 200B tariffs and impose new ones on an additional 325B worth of products. It’s unclear at this stage whether the two countries can make a deal before the new tariffs come into effect in the next day. Chinese Liu and his team will travel to Washington in last minute attempts to prevent spiralling out of control, talks will start at 5pm EST which is 9am Friday NZT. Read more
Friday’s Building Approvals disappointed, to be fair it was only going to go one way with approvals falling 0.6% in March. The release pulled the Australian Dollar lower to a four month low of 0.6985 against the greenback. US (NFP) Nonfarm Payroll came in higher than markets were expecting at 263k and 3.6% unemployment a 49 year low, with the Aussie traded back to 0.7030 at the weekly close. US trade talks have again reared its ugly head with tariffs to be raised this Friday from 10% to 25% on Chinese made products entering the US. Talks between the US and China were supposed to take place this Wednesday but China are considering cancelling talks after recent Trump threats. In a fresh wave of downside momentum the Aussie is battling to stay over the pivotal 0.7000 level and looks extremely vulnerable ahead of tomorrow’s Retail Sales and RBA cash rate announcement which could go either way – down or remain unchanged at 1.50%
On the surface things looked rosy with NZ unemployment nudging lower to 4.2%, however the size of the workforce shrank 0.5% raising further questions as to whether the RBNZ will lower the cash rate this Wednesday. Chances range around the 50% probability for a cut at the meeting. We think the RBNZ will hold for a while yet possibly through to the August meeting. Quarterly inflation expectations print first today at 3pm NZT and are expected to remain at 2.0%. In the past the RBNZ have spoken about the downside risks to the NZ economy due to the decreased global outlook, but the threat of such a view for global growth seems to have been overstated. Although with renewed US China trade discussions taking a turn for the worst with the 10% tariff increase to 25% this Friday, this could sway RBNZ opinion. We have said a few times how we think Trump is sugar coating the true picture- expect things on the trade front to become considerably worse before anything improves. The kiwi is trading around the 0.6600 level against the greenback- if rates are cut we should see a retest of the yearly low of 0.6580. Read more
ANZ Business confidence published slightly weaker adding a touch of downside vulnerability to the NZD Tuesday. Chinese Manufacturing data released at the same time down on market expectations which dragged risk currencies lower. The kiwi fell 30 points before recovering somewhat on Wednesday’s employment numbers. On the surface things looked good with unemployment nudging lower to 4.2% however the size of the workforce shrank 0.5% and raising questions as to whether the RBNZ will now lower the cash rate next week on the 8th of May. Chances range around the 50% probability for a cut at this meeting. We think the RBZN will hold for a while yet and then cut around August.
The Federal Reserve left their benchmark rate unchanged at 2.5% Thursday morning strengthening the Big Dollar as the WSJ Index which measures the strength of the US currency against a basket of 16 currencies advanced to 90.72. This is the highest level since November 2018. The Fed noted some important indicators had shifted lower over the first quarter of 2018 and that soft inflation was likely to be “transient” – he would remain patient. ADP Non-Farm Employment figures, an early look at the Non-Farm Payroll release later tonight, came in higher than markets were expecting at 275k based on 181k, close to an additional 100k more showing an extremely robust US jobs market. Friday’s NFP could be overstated by census workers working under the US govt payroll in April and May. Read more
Easter holiday week has not been kind to the Australian Dollar as it slid large in thin market trading. The worst performing currency, it has depreciated nearly 2.0% against the Japanese Yen. CPI q/q printed down at 0.0% on 0.2% expected, aggressively knocking the Australian currency lower momentarily under 0.7000 against the big dollar. The CPI number y/y is the worst result on record. The result has increased the odds of a rate cut at the 7 May RBA meeting. It’s a quiet week for Australian economic data with only Building Approvals Friday to get excited about.
Easter holidays made for a mixed week of trading for the New Zealand Dollar in thin market conditions. Trade Balance the only highlight published at 922M based on expectations of 131M from the month of March The numbers were higher than normal based on seasonally adjusted exports for dairy, meat and forestry products. The 922M surplus of exports is the highest since April 2011. ANZ Business confidence printed only slightly changed from prior this morning, but it was weak Chinese Manufacturing data which put pressure on the kiwi across most NZD crosses, the NZD/USD dropping 20 points following the release. NZ unemployment is expected to drop to 4.2% from 4.3% Thursday. Read more
Australian markets were quiet on the reduced Easter/ANZAC holiday period with the main focus this week on the Q1 CPI data due out early this afternoon. News that the Chinese government was about to end stimulus measures for the economy saw pressure back on the Australian dollar which has slipped back from the 0.7200 level against the USD seen last week to below the 0.7150 level with next support seen down at the 0.7100 mark. We expect thin volumes over this week so any move may be exacerbated.
Continuing thin volumes and little local data will see the NZD moved by offshore markets this week, with only trade data on Friday to provide any local input. Already the news on reduced China stimulation has seen the NZD drift lower and we look for the kiwi to remain on the defensive over the week. Immediate support is at the 0.6600 level. Read more
The Australian Dollar consolidated around the 0.7160 area against the big dollar Tuesday off last week’s low of 0.7120 as the currency waited in limbo for the published release of the RBA monetary minutes from the latest cash rate announcement two weeks ago. The minutes highlighted the RBA board are unlikely to raise rates in the near term and a rate cut would be appropriate if inflation stays low and unemployment trended higher. The RBA would support the economy via a lower valued Australian Dollar. The AUD fall in value 20-30 points across the board on the release. Later in the week jobs data represents the only excitement on the calendar and should offer us further direction in the currency. We are expecting more of the same from February’s 8 year low in unemployment and RBA’s view of strong growth through 2019.
Putting aside bad news this week in the markets last Friday’s positive risk sentiment should continue deep into this week. Good Friday holiday and Easter Monday will make sure investors ease into the weekend as market volume thins out. Chinese March Trade Balance released at a huge 221 Billion after 2 Billion markets were expecting highlighting a rebound in February and a nice healthy surplus. The kiwi spiked to 0.6780 against the greenback outperforming on the Monday but eased back to 0.6750 as equities dropped a touch. CPI came in low at 0.1% after we were expecting 0.3% putting immediate pressure on the kiwi gapping it 100 points lower. Read more
Investors became nervous midweek after the US Fed’s March meeting minutes added vagueness regarding the direction of the next move in rates. Participants noted that the rate could shift up or down depending on upcoming economic data and other developments. US Core CPI printed a shade lighter than predicted at 0.1% from 0.2% expected putting pressure on the greenback. Earlier the IMF said the global economy was slowing and downgraded the global outlook for growth from 3.6% to 3.3% for 2019. Projections were positive growth prospects would improve in the second half of the year supported by shifts to central banks monetary policy
The EU have agreed to a Brexit extension to 31 October 2019 (6 months) as Theresa May continues to work on her 585 page withdraw agreement and a political declaration on the future of the UK. May will have extra pressure put on her between now and the exit date to stand down to allow a new party leader to enter the fray- I’m not sure this is the best solution with limited resources available. The main issue with an extension is until now government have been unable to agree on a way forward and make compromises. Fundamental disagreements between parties around what the relationship looks like between the EU and the UK have the capacity to derail yet a negotiated solution. Read more