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Currency markets over the week have been rather slow leading up to the Federal Reserve rate announcement yesterday. The Fed was not as dovish as we anticipated leaving rates at 2.50%, with Powell saying they would gauge incoming economic data and the trade situation with China as to whether they would cut rates at the 1 August monetary policy announcement. Some market participants are expecting two cuts this year, some none with one cut in 2020. The upcoming G20 meeting which starts on the 28th June is set to be a pivotal important meeting in Osaka with negotiations between US and Chinese officials on trade tariffs expected to resume. In the meantime, top US negotiator Lighthizer has said he would contact and speak with the Chinese Vice Premier Liu He prior to the G20 meeting to try and get a head start on proceedings. The talks have followed over six weeks of terrible relations between the US and China officials in a time when many have believed the two heavyweight countries had secured a deal both were happy with.

The New Zealand Dollar first quarter GDP printed bang on expectations of 0.6%, this was the same growth seen in the December 2018 quarter. Year on year the New Zealand economy grew by 2.5% over the previous year’s 2.3% with goods producing industries having the strongest growth in the quarter up 2%. Rightfully so the NZD climbed quickly higher after the release across all cross currencies with investors seeing fresh enthusiasm to buy NZD. We see a higher kiwi on the horizon now for these main reasons – US Fed will cut rates on the 1st of August, NZ growth looks positive after yesterday’s release, June 26th RBNZ meeting will now think twice over cutting the cash rate to 1.25% from 1.50%. If trade negotiations at the G20 meeting late next week go well we could see markets turn to “risk on” significantly benefiting commodity based currencies such as Aussie and kiwi.   

The race for the next UK prime minister is in full swing with the third run of voting completed Wednesday. There are four contenders left. Boris Johnson has the clear upper hand against his opponents topping the voting with 143 votes, Jeremy Hunt was second with 54 ahead of Michael Gove with 51. Rory Stewart came in fourth with 27 votes and was eliminated. The fourth round of voting took place overnight with the 313 Conservative MP’s reducing the remaining four to two finalists, Boris Johnson and Jeremy Hunt will now face off. From here a ballot of the parties 160,000 members will decide the winner which will be declared in the week of 22 July.

The ECB have spent the past several months preparing markets for a new cycle of policy tightening only to see their grand plan hit a roadblock with the global trade war derailing their hopes. Draghi said earlier in the week that the European Central Union will ease policy if inflation fails to kick on. The problem Draghi has is that after years of slowly bringing back the European economy from the depths of despair he has limited cards up his sleeve with the ECB’s balance sheet swelling to 4.7 Trillion euros raising the effectiveness over further measures such as the new TLTRO – Long Term Refinancing Operations. Draghi found himself on the receiving end of a Trump tweet gem accusing the ECB chief of purposely devaluing the Euro after he signalled a dovish turn with further stimulus. A weaker EUR is easier for the Eurozone to do business with US traders.

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