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FX News

It’s been an action filled week with plenty happening but little currency movement – until Thursday. The Federal Reserve left their benchmark rate unchanged at 2.50% but it was the dovish stance which sent markets in a flurry exiting from the US Dollar. Powell has maintained his neutral position but markets were well ahead of him sensing prospect for a rate cut later this year possibly in 2020 – at the 29 January 2020 announcement markets had priced in a 47.1% probability of a cut but this has shifted to 33.7% chance with virtually no further hikes for 2019 on the radar. The US Dollar index slipped to 95.80 after Powell’s speech and looks to move lover once markets have digested reasonable prospects that growth may be capped above 2%. Powell went on to say he expected the economy to still grow at a solid pace giving mixed signals. It wouldn’t be right if we didn’t talk about trade tariffs, as we have done over the past 9 months, so here is the update – Whitehouse adviser Hassett has said trade deals are moving forward. But, Trump has come out and said, trade tariffs on Chinese imports may remain in place for a substantial period of time. NZ GDP released bang on expectations of 0.6% for the 4th quarter and took the kiwi to fresh highs across the board as analysts were expecting a negative result based on recent data. This will keep Ore happy with the prospect of a rate cut being pushed out a while longer. We think
GDP will continue to grow at around 2.5% y/y through to 2020 with no rate cut for 2019. 2020 could be a different story as projections for continued growth are skewed to the downside.

The Australian economy received some relief after jobs data printed. With an additional 4.6k jobs added to the Australian workplace, this wasn’t quite the result we were expecting but it wasn’t ugly either. The unemployment rate seemed to receive most of the focus when it published down at 4.9% from 5.0% giving the RBA comfort after high hopes a solid figure would rescue, if not temporarily, the economy from recession. AUD rallied on the news from 0.7125 against the greenback to 0.7165. Theresa May has written to the EU council requesting an extension to article 50 until the 30th June 2019. May has had no choice but to ask for an extension after having her first two withdrawal documents rejected and also a no deal exit vote scenario taken off the table. May confirmed to the media that its my deal or no deal or not leaving the EU at all. EU general elections begin on the 23rd of May so for any extension to be granted one would expect a formal deal to be wrapped up by this date as many of the EU parliament members will be indisposed for a period after this date. There could also be legal implication by the EU if UK citizens were not able to vote as they could still be members of the EU. UK Retail Sales figures returned a positive result publishing at 0.4% from -0.4% expected and the Bank of England (BoE) voted in favour 0-9 of retaining the overnight cash rate at 0.75% and expects to gently increase borrowing costs if the UK’s exit from the EU is smooth, this comes as a surprise as other central banks change their views amid a slowdown in the global economy. In last minute news we have seen headlines suggesting the EU leaders have agreed to extend Brexit to the 22nd of May. The Pound has since bounced off 1.3000 against the big dollar retracing back towards 1.3100 as further news airs. Early Friday saw markets turn risk averse pushing investors back into the US Dollar, the kiwi, Aussie and Euro are all off over 0.5%.

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