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FX Update

Worldwide coronavirus cases surpass 14.9M with over 616,400 deaths officially reported.

The New Zealand Dollar (NZD) and the Australian Dollar (AUD) both performed strongly this week gaining against most other currencies. Positive risk sentiment was definitely a factor with optimistic headlines doing the rounds regarding potential Covid vaccines by the end of the year. We also had an agreement on a EUR750 Billion recovery fund in the EU, while in the United States Democrats and Republicans are in the process of negotiating another stimulus package. Global equities continue their strong run, thanks largely to the unprecedented levels of money creation by central banks, and that excess liquidity combined with positive risk sentiment really has been the driving force in markets for much of this week. Both gold and silver are also benefiting in this environment and it is hard to see their bullish trends turning around any time soon. There are risks out there however and increasing geopolitical tensions should not be ignored. Tensions between the US and China deteriorated further this week with the US ordering the Chinese consulate in Texas to be closed. We wait to see what sort of retaliatory action China will take.  In the past 12 hours we have seen US unemployment claims for the past week come in above expectation at 1.4m. This provided a bit of a reality check for markets and triggered a mild “risk off” correction.

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FX Update: Vaccine hopes push risk higher

Worldwide coronavirus cases surpasses 14.8M with over 612,000 deaths officially reported.

The New Zealand Dollar and the Australian Dollar closed out the week keeping their top spots against the major currencies so far for the month for July.

Victoria coronavirus stole the attention last week when the state clocked 428 new cases on Friday and a further 363 Sunday. The virus has got so bad in the community Premier Daniel Andrews announced masks will be compulsory in Melbourne in a few days’ time. The state has recorded 12 consecutive days of triple digit increases. Consumer confidence in Australia has taken a hit over the past few days with Victoria deteriorating 10% while the rest of Australia is down 4.5%. To make matters worse Australian Unemployment reached 7.4% in June, a 22 year high which will keep the local mood low. Federal government is expected to increase their fiscal stimulus this week which could boost sentiment. This is the first economic statement since the pandemic hit the country in March. The budget will include 90B in the already announced stimulus, and an extra 50B of new measures. The Aussie remains resilient finishing the week just below 0.70c but further coronavirus outbreaks in Victoria should cast doubts over any V shaped recovery momentum. Vaccine hopes and recently buoyant commodity prices, in particular iron ore prices, together with China’s economic rebound have kept the Aussie moving higher. While “risk” mood remains stable, the Australian Dollar should continue to travel north for the moment.

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FX News

Todd Muller resigns as National Party leader.

Worldwide coronavirus cases surpass 13.2M with over 574,000 deaths officially reported.

Key Points:

• Last week’s performance of the New Zealand Dollar saw a net gain against the majors, the Pound was the standout though climbing from Tuesday with a number of economic tax incentive announcements
• President Trump has spoken out about prospects on a phase two trade deal. He says the relationship with China has been “severely damaged”. White House advisor Navarro expects Trump to take heavy action against Chinese owned TikTok and WeChat for engaging in “information warfare”.
• The US military base in Okinawa has been locked down after 61 new coronavirus cases were reported, there are around 25,000 personal on the base

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FX Update

Worldwide coronavirus cases surpasses 11.7M with over 540,000 deaths officially reported.

The New Zealand Dollar is feeling pretty good at the moment with the stars aligning the kiwi continues north. Driven by positive local and offshore news flow and the deteriorating coronavirus conditions offshore. Risk on moves are not moving in the normal ways we are used to seeing, with everything moving against the US Dollar. Equities are still at extremely high levels and the USD/JPY risk barometer is trading close to March lows in line with a weaker USD. The tone of everything moving together against the greenback looks set to continue for a while longer especially in the wake of higher coronavirus infection numbers in the US. Overvalued NZD and AUD levels are a concern amid coronavirus in Victoria worsening with new lockdowns in Melbourne. With US coronavirus out of hand as well, we could see risk markets taking hits over the following weeks. This could have a flow on effect for New Zealand economically.  The RBNZ stance on monetary policy will come under strain at their next meeting on August 12 as a decrease from 0.25% looks unlikely, they may start to buy foreign assets to support the current QE program. With the government selling NZD the currency is only going to go one way. 

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Covid-19

FX Update

Worldwide coronavirus cases surpasses 11.7M with over 540,000 deaths officially reported.

Risk sentiment towards the close of the week remained perky in the face of increased coronavirus cases. The Tasman currencies pushed higher into Tuesday as coronavirus continued to worsen around the world occupying headlines in the wake of minimal economic data and US independence day holiday celebrations. As the rest of the world starts to open up restrictions the US is a different story- especially in Texas and Florida with scary daily levels of the virus. Payroll subsidies have been extended in many countries including in New Zealand. Jacinda confirmed the subsidy would not be extended again past 1 September just before the general election. Loans to small businesses have been extended however to the end of 2020. The sharp turnaround in NZ Retail spending recently up by 50% since lockdown level 4 is encouraging as these numbers are similar to 2019 levels. We don’t expect this to continue into late 2020 in line with cancellation of wage subsidies just mentioned and unemployment concerns. As a lot of households have canned overseas holidays, New Zealanders will start to increase their spending on local holidays. This will give tourism operators some breathing space after staring down the barrel of very little or no earnings. 

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FX News

Economic Releases

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Tuesday 07/07

  • 2am, USD, ISM Non-Manufacturing PMI
    • Forecast 50
    • Previous 45.4
  • 230am, CAD, BOC Business Outlook Survey
  • 430pm, AUD, Cash Rate
    • Forecast 0.25%
    • Previous 0.25%
  • 430pm, AUD, RBA Rate Statement
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Direct FX

FX Update

Worldwide coronavirus cases surpases 10.785M with over 517,000 deaths officially reported.

Safe Haven buying midweek was replaced by optimism with positive news out of the US with a trifecta of economic releases. Manufacturing for June bounced higher than expected from 43.1 to 52.6 as the industry formally entered expansionary territory- given it is back above the 50 breakeven threshold. The rise was the largest rise since August 1980. New manufacturing orders were sharply higher along with production increasing from 33 pts to 57.2. Jobs data surged as US firms added more than 2.37M jobs to the economy in June. This is a turnaround from May’s upwardly revised job losses of -3.065M as companies continue to re employ workers and the economy slowly comes back online. US equity markets rebounded with the Nasdaq hitting a record high of 10197 up 1% as news broke that Covid-19 vaccines by companies BioNTech and Pfizer were making progress. Both companies and their experimental vaccines have generated neutralizing antibodies at a higher rate than other placebo receivers recovering from the coronavirus infection. FDA’s guidelines for vaccine development suggest a long road before a vaccine is widely available.    

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FX News

FX Update

Worldwide coronavirus cases surpasses 10.4M with over 507,000 deaths officially reported.

As most countries gear up for a second wave of coronavirus the burning question is how bad will this be? 

While most economic news recently out of the US has been positive such as Retail Sales and Home Sales is undoubtedly good news, is it sustainable? The dreaded second wave could have serious consequences on the state of mental health and economies around the world. The US govt stimulus programs only have a limited life span until the money runs out. Coronavirus is rising at an alarming rate with some states and hot spots remaining in lockdown. Payroll protection loans to small businesses and unemployment bonuses have nearly ended creating an awful time for employers as they consider whether to keep staff on or not. Where to from here? Victoria, Australia has just reported 75 new cases on Monday with the chief health officer suggesting it will get worse before it improves. Of these cases 6 are said to be community spread with most (57%) Australians expecting the virus to impact home activities, employment situations and social behavior for longer than 6 months.  Any trans- bubble earlier considered has long been abandoned in my book as we eye a long road to economic global recovery. 

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Economic Releases

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Monday 29/06

  • All Day, EUR, Italian Bank Holiday

Tuesday 30/06

  • 1pm, CNY, Manufacturing PMI
    • Forecast 50.4
    • Previous 50.6

Wednesday 01/07

  • 1230am, CAD, GDP m/m
    • Forecast -10.50
    • Previous -7.20
  • 430am, USD, Fed Chair Powell Testifies
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