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Australia
The Australian Dollar has had a mixed week against the major currencies holding ground
against the US Dollar but posting losses against the Kiwi. The currency rode on the coat
tales of the mighty Kiwi Dollar after the RBNZ left rates unchanged Wednesday pushing up
broadly. It’s a very quiet week on the economic docket with only RBA  governor speaking
again Friday. Some support for the Aussie Dollar in 2019 could come in the form of higher
Iron Ore values with prices expected to rise over the coming months based on increased
demand in China. With the RBA coming out last week on three separate occasions with a
pessimistic Australian economy for 2019 we can’t sweep away speak of the RBA cutting
rates in the second half of this year. The RBA has left rates on hold since August 2016 but
we are predicting a drop to 1.25% in the second or third quarter with current dire signs we
have seen.

New Zealand
The New Zealand Dollar spiked higher Wednesday after the Reserve Bank of New Zealand
left the benchmark rate unchanged at 1.75% The general view of markets was for a dovish
tone but this never eventuated. Certainly not a hawkish statement but rather less dovish than
expected. As markets had priced in a bearish kiwi based on other central banks recently
downgrading their 2019 forecasts the kiwi got well long on the news. Adrian Orr said a
balanced outlook remains while warning that a sharp global downturn could eventually
weigh the NZ economy down. The next cut could be up or down with the probability of a rate
cut now 50/50 to the end of this 2020. President Trump stated the ongoing trade talks in
Beijing this week are making good progress ahead on the March 1 deadline where tariffs
will go from 10.0% to 25.0%. With this being said equity markets have posted a positive day
helping to boost the kiwi.

United States
Trump is not a happy man after receiving a wall spending package of 1.375 Billion from
congress for the rest of the fiscal year. This comes as no surprise after he wanted 5.7 Billion.
What’s evident here is that he has got the bum stare from his own Republican members as
this was clearly a ‘Trump’ incentive rather than a Republican one. There is still a chance
Trump could veto the current deal on the table and come back even more grumpy – after all
this was his biggest ticket item he promised prior to being elected in 2016. Secretary of state
Mnuchin, the US officials, and Donald Trump are meeting Chinese officials and negotiators
in Beijing this week to work on the US/China trade war. Trump made comment they have
made good progress and said “they are showing us tremendous respect.” Unfortunately
with the Chinese economy showing signs of slowing recently they are not in the best
negotiating to obtain a favorable resolution. Trump said he was open to extending the
March 1 deadline of which 200 billion in tariffs will default from 10% to 25%. Markets over
the next couple of days will react to negotiation outcomes, Most indices are posting gains
this week with the DOW up around 3%.Monthly CPI came in slightly down at 0.0% after
0.1% was expected. Retail Sales data prints Friday.

United Kingdom

Olly Robbins, the most senior Brexit negotiator, was overheard in a bar overnight discussing
Brexit and prospects that MPs will be offered a last minute option of the Theresa May
agreement or a lengthy delay to the deadline of 29th March. This would effectively give MPs
a choice of extending the article 50. Currently Theresa May has secured an agreement with
the EU on further talks to allow her to resolve the complicated issue of the Irish backdrop.
CPI y/y has released below the expected 1.90% at 1.80% showing the first time inflation has
gone below the 2.0% target rate since 2017. The drop was mostly based on lower household
services such as gas and electricity prices which have fallen 5.0% and 8.5% over the past
year. Retail Sales prints Friday and is expected to be a positive number January figures.

Europe
Softer data out recently in the Eurozone has seen the Euro slide further as it has continued
its downward spiral from the high of 1.1530 a couple of weeks back to extend to 1.1250.
While we have also seen USD risk as well with the US political scene, yields are still
showing plenty of room for bigger adjustment from the Fed. The wash up is a reasonable
probability the EUR will trade back towards the yearly high of 1.1570 over the next few
months. The Eurozone slowdown makes this task tough though with inflation down to 1.3%
from 1.9% in 2018 and uncertainty creeping in. German fourth quarter GDP publishes
tonight and is expected to print up on third quarter figures and boost the EUR.

Japan
The Japanese Yen has been hit hard over the week depreciating large against its main
rivals, coming off 1.85% so far against the New Zealand Dollar. Risk sentiment has been
good this week with a positive mood coming from President Trump towards his border Wall
fiasco and trade talks with China. Japan’s economy grew by 1.4% y/y in the final three
months of 2018 rebounding off the third quarter contraction of 2.6%. Analysts remain
concerned that exports in Japan will weaken this year if the US government and China don’t
resolve their ongoing trade dispute. Although the economy has rebounded it is still losing
momentum, the longer the dispute wears on the weaker exports will be in Japan.

Canada
Employment in Canada for the month of January surged ahead of expectations, led by the
biggest month ever recorded in private business when figures showed an increase in hiring
by a massive 66,000 compared to the expected 8,000 jobs. The unemployment rate jumped
to 5.8% from 5.6% due to more people looking for work but was overlooked. Low wage
growth and temperamental Crude Oil prices could hinder the Bank of Canada from hiking
next month. No tier one data prints this week, price will be dictated by offshore geopolitical
risks- versus the greenback the CAD has pushed through to 1.3240 as Crude Oil trades
back over 54.00 from Mondays 51.25 low.

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