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Markets are still figuring out what it all means post US elections and Fed policy announcement. Initially the reaction has been mixed but with a general US Dollar up theme and risk on markets. We are still looking at Fed policy normalisation at a time where there is heaps of downside risks including global trade. Any downside to equity markets and sentiment from here will not bode well for risk associated products and could bring back topside failures in major currency pairs. With a US Holiday Monday celebrating veterans Day markets should ease into the week. The New Zealand Dollar was the standout performer last week with unemployment dropping to a 2008 low of 3.9% from the 4.4% markets were expecting. With risk factors this week expected to drive price action we could see the kiwi ease back towards last week’s open of 0.6650 levels. EU and UK negotiators are close to a breakthrough with both sides aiming to get political approval on the Irish border backdrop. President Trump has upset fire besieged California when he tweeted about the mismanagement of forestland and threatened to cut federal funding to the state. Fires in southern California have killed more than two dozen people and destroyed over 6,500 buildings forcing the evacuation of over 250,000 people. The fires are the worst in California history with Trump expressing no sympathy for those caught in the fires, instead using the catastrophic event to criticise the state’s environmental regulations. We have several key data releases on the economic docket but geopolitical news could influence shifts in currencies the most. Read more
Tuesday’s RBA cash rate announcement turned out as we predicted summarising recent rhetoric regarding monetary policy and retaining the current rate at 1.50%. The current rates are consistent with sustainable economic growth which has been revised up for 2018 and 2019. The RBA also think the unemployment rate will reduce to around 4.75% in 2020 with a lift in Wage growth. The elephant in the room was the ongoing pessimistic view of the housing market. The RBA is becoming uncomfortable with the declines in Sydney and Melbourne prices. If credit tightens we could certainly see values go south putting a squeeze on consumer behaviour. US Midterm election voting caused market volatility Wednesday but as results were published suggesting the Republicans would retain control of the senate risk markets improved and the Australian Dollar posted fresh highs. Read more
This mornings NZ Jobless rate has pushed the NZD/USD to a 3 month high of 0.6732.
Figures releases today at 10.45 has seen the NZ unemployment rate plummet from 4.4% to 3.9% surprising markets, the lowest level since August 2008. Reflecting a sharp drop in the number of unemployed was the increase in the number of employed people jumping from 0.5% to 1.1%. One would expect the monetary policy statement tomorrow to now be quite hawkish. The NZD/AUD has jumped to trade above 0.9300.
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Melbourne Cup runs today at 5.05pm NZT.
The potential future of Donald Trump’s presidency could be decided this week with US Midterm elections taking place. The Democrats need only 23 further seats to make a total of 218 to take control of the House, polling starts Wednesday NZ time. The world’s economies have enjoyed a buoyant year with the international Monetary Fund in April saying the planet was enjoying the most united upswing since 2010. The mood however has changed in October when they cut its global outlook saying global growth has plateaued. The change is being led by China with the weakest current stretch of performance since 2009 is expected to get worse unless a favorable deal can be negotiated in the trade war with the US. The Eurozone is also losing pace expanding in the third quarter less than the previous quarter as Germany and Italy staled. The big question now is if recent US growth can continue providing good results on the back of protectionism and higher interest rates heading into 2019 and provide a counterweight for the rest of the world. Reports have indicated that a potential trade deal could be close between China and the US. Trump’s lead adviser Kudlow has played this down when he said “no massive movement to deal with China” and “we’re not on the cusp of a deal”. Chinese manufacturers who have the misfortune of being on the list of affected companies who will have tariffs raised from 10% to 25% on a 1 January 2019 are flat out producing products for export into the US markets to make shipping deadlines before the due date. US Non-Farm Payroll employment increased by a healthy 250,000 jobs Friday for the month of October well up on the forecasted 190,000. Wage growth has risen by 3.1% year on year, this is the fastest increase since 2009. The greenback rallied along with the US 10 year treasury bond jumping 8 points to 3.21%. US equity markets turned negative – the Nasdaq falling 1.20%. Three central banks will release cash rate announcements this week starting with the RBA Tuesday with no change from the 1.5% expected. RBNZ Thursday with no change from 1.75% expected and Federal Reserve also who will keep their benchmark rate at 2.25% Read more
Choppy conditions this week have seen the Australian Dollar bounce around, but a strong rally in the past 24 hours has seen the AUD currently trade just over 0.7200. Generally the Aussie Dollar has held its value on the crosses over the week with only the NZD really making gains. Australian CPI figures printed down on expectations around 0.4% from the 0.5% markets were expecting highlighting inflationary pressures remain weak. According to Aussie stats consumer price inflation grew only 1.9% to September down on the 2.1% growth through to June. Weak Chinese manufacturing data put added pressure on the Aussie along with end of month repositioning of off balance sheet risk. But then trade Balance data boosted the Aussie Dollar Thursday when figures reported a 3.02B surplus based on markets expectations on 1.71B. Attention is now on Australian Retail Sales today and US Non-Farm Payroll tomorrow morning to close the week. Read more
Another crazed lunatic has gone on a shooting spree in the USA. Robert Bowers stormed into the Tree of Life synagogue in Pittsburgh over the weekend and opened fire on its patrons with an AR-15 semi automatic rifle and 3 handguns killing 11 people and wounding many. The killer yelled anti-sematic comments during his frenzy. Six people were also injured including four police officers. The shooter was described as being an isolated and awkward man who lived alone and struggled with basic interactions. Equity markets in the US closed down for the week with the DOW at -3.0% and the S&P and Nasdaq both around -3.9%. Amazon plunged 10% after its 3rd quarter revenue fell short of expectations and Google was left backtracking after sexual misconduct allegations. This week we have company earnings results for Coca Cola, General Motors, Apple, Starbucks, US Steel and Exon Mobil so we expect the roller coaster to continue well into this week with volatility in equities and currencies. The New Zealand Dollar could come under further pressure on a lack of local data this week if further risk aversion continues. The Bank of Japan (BoJ) releases its interest rate decision Wednesday with investors widely expecting the rate to remain unchanged while a few fine tuning policy changes are expected. US Non-Farm Payroll releases at the end of the week with 190,000 people expected to be formally added to the workforce for October. Average hourly earnings follows with expectations of a jump from 2.8% to 3.1% p/a with US unemployment also releasing around the 3.8% area up from last month’s 3.7%. The US Federal Reserve will be watching these results closely to re-affirm the continued tightening program into 2019. Read more
The Australian Dollar continues to drift lower across the board, perilously close to long term support of 0.7040 against the US Dollar Thursday. If we see further weakness, through 0.7040, due to risk averse market sentiment we could expose key support at 0.6800 levels. Equities have affected price action over the past week or so, the 3 main indices falling over 5%. Australia was upgraded to AAA this week by Fitch as they expect Aussie GDP to be 3.3% at the end of 2018, 2.8% in 2019 and 2.7% in 2020. The government deficit is expected to drop to 0.4% of GDP by 2020. This week sees zero economic data to comment on with the overall risk off tone expected to continue. Next week’s quarterly CPI and Retail Sales will be key with Core CPI forecast to print 0.3% showing annual pace to drop back to 1.8% from 1.9% y/y.
With little in the way of local led economic data the New Zealand Dollar has been restricted to mainly range bound movement. Risks adverse conditions have dominated markets with equities falling again continuing last week’s bearish mood. We think the kiwi should be weaker than it is, particularly against the US Dollar and with the massive drops in stocks, but it has shown remarkable resilience considering. NZ’s Trade Balance for September released at a deficit of 1.6 Billion the largest deficit on record. Imported petroleum products such as crude oil and a heavy weighing in exports of dairy and beef at a low point in the season contributed to the high deficit number. With NZ Business confidence down of late, hinged to the new labour government all eyes will be on the ANZ Business Confidence poll result releasing early next week. With better than expected figures last month based on improving employment and residential construction hopefully this will continue. Read more
Healthy September jobs data yesterday showed that the unemployment rate hit a seven-year low, dropping to 5% in September on the back of the continuing jobs boom in Victoria and NSW. Employment increased by only 5600 jobs in seasonally adjusted terms, but the 0.3% decrease in the number of people looking for jobs was also a factor in the overall unemployment rate falling from 5.3 % in August. The participation rate fell from 65.7% to 65.4 %, the lowest level in 11 months. This stronger than expected result, would have come as a surprise to the RBA who had forecast an unemployment rate of 5.25 % to June 2020, reinforcing the view that the next cash rate move from the RBA is likely to be up not down. The Aussie dollar firmed after these figures, rising to 0.7132 against the Greenback. In the prevailing risk-off tone the AUD has struggled to hold onto yesterday’s gains and this morning is trading down around 0.7095. Given that the Australian equity market is trading down we look for the AUD to remain under selling pressure especially if this afternoon’s Chinese GDP, retail sales and Industrial production data disappoints. Next support level is 0.7085 but look for test of 0.7000 over next week.
Little in the way of economic data to drive the NZ dollar in the back end of the week.
Migration data released this morning, showed that net monthly migration slowed to 4,640 in September, the lowest monthly net inflow since 2014. That translated to annual net inflow of people into the country falling to 62,700 – the lowest level since October 2015. Expectations are that migration will continue to ease back over the next few years, pulling population growth down in the process. This reinforces our forecasts for a period of soft demand growth over the coming years.
The NZ dollar has held up reasonably well over the week in the face of a firmer USD, making a high of 0.6598 on Wednesday, but has now drifted back to the 0.6530 level against the Greenback and will remain under pressure if the current risk-off sentiment prevails, another test of the 0.6500 support level looks likely next week. Read more
Twas a week dominated by Equity movement. Stocks rebounded off lows Friday with markets posting gains of over 1%. While the Friday gains were a good way to end the week we must remember that overall all US based indices are still down over 4% which marks the third biggest weekly loss this year. The DOW had the largest falls, down over 5% and still shows downward momentum. Crude Oil ended a four week surge higher but has posted a 4.5% loss much the same as the indices. Holders of long equity positions never reacted with panic selling, instead markets corrected closing the week higher. A major factor in the equity movement was the spike in US interest rates, in particularly the 10 Year treasury bond moving into lofty territory Thursday when it spiked at over 3.25% causing the sell off and damaging risk sentiment. Brexit negotiations continued over the weekend with Brexit secretary Dominic Raab travelling to Brussels to try and agree on final details of a transition deal in advance of the EU leaders meeting on Wednesday. No signs of an Irish border resolution has been agreed yet, the only major part of the deal still missing in what turned out to be a tense stalemate. Both parties the UK and EU will more than likely miss this week’s meeting in Brussels on Wednesday. Both sides seem to have given up on a resolve this week with everyone now starting to become increasingly nervous with time running out before the UK’s exit in March 2019. Crude Oil jumped in value to 72.18 amid rising tensions between the Saudi Arabia and the US over missing journalist Jamal Khashoggi after he walked into the Saudi Arabia’s consulate in Turkey to get some documentation sorted for his upcoming wedding. So far the US has stayed clear of the controversy but this may have changed after President Trump said “severe punishment” against the Kingdom if leaders are found responsible for the killing of the Washington post columnist. This week we have key market data announcements, UK and Canadian CPI and US and UK Retail Sales along with Australian Unemployment. Read more
The Australian dollar saw a little upside momentum earlier in the week but lost support after Equity markets plummeted sending the Aussie back towards recent lows. Experts are expecting further declines in the Aussie dollar towards 0.6500 against the big dollar. With falling Aussie Housing Sentiment clearly making its mark I’m not convinced any drops will be this significant. The Mining downturn since 2011 could be coming to an end with the RBA expecting the industry to bottom out in the following quarters with the large LNG (gas) expansion projects are wrapped up. Housing market sentiment has dropped to its weakest in two years with confidence in the residential sector the lowest since 2012. The outlook for construction has deteriorated with tighter credit conditions and funding issues to blame with foreign buyers demand also dropping. No further significant local data for the rest of the week on the docket, movement will be based on risk perception.
Heightened risk aversion saw the kiwi trade lower from its recent splurge north this week, and while it’s made some further gains overnight, we fear downside action will resume. US Equities have fallen heavy in line with an uncomfortable feeling in markets around the rise of the 10 year US Treasury prices going to a staggering 3.261%. The DOW and S&P are both down over 4.0% along with the Nasdaq which has fallen a whopping 4.5% in the last two days. Over the following few days Stocks will be key to further currency market momentum especially with the kiwi being risk associated, we could easily see further weakness develop. The IMF (International Monetary Fund) released a report projecting the world’s economy will grow by 3.7%. This is slightly lower than the July estimated figures showing a small slow down from 3.9% – they are blaming President Trump’s trade policies as part of the reason. 2019 world growth has also been revised down with the recently announced trade tariffs placed on US imports from China. The local economic calendar is light this week with nothing on the radar to impact the kiwi. Read more