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FX Update

The Reserve Bank of New Zealand has left the official cash rate unchanged at 1.0% but indicated that further cuts remain likely. Domestic indicators and global uncertainty show the softness in the economy should continue into the second half of the year. The RBNZ sees further scope for more stimulus as the economy tries to maintain inflation and employment targets. So in summary by Orr a dovish report but not as dovish as we were predicting. GDP forecasts out to 2020 were positive by the RBNZ which was surprising. The chances of a rate cut at the 13 November policy meeting builds with Orr saying he expects upcoming NZ data to firm up the need to not make a further cut.  The New Zealand dollar and Australian Dollar traded lower after the release through Wednesday’s overnight trading sessions and into Thursday.

The President Trump impeachment news affected the risk currencies with 218 house members supporting the inquiry. With Trump’s members in the senate holding a Republican majority it is always going to be tough. The fact the democrats launched an impeachment inquiry based on no facts has damaged their credibility. Equity prices rallied off the back of the US President making comment he thought a trade deal with China would come sooner rather than later. This pushed the US dollar higher with the US leader confirming that China were already making big purchases of agriculture, pork and beef. Unfortunately it’s the intellectual property discussions which will change the game and fundamentally change global economies. Trump said “there’s a good chance we’ll make a deal with China, we are getting closer and closer”. It’s hard to believe based on previously made comments, but for now it has improved market sentiment.  

The British Pound is again under pressure after calls for Prime Minister Boris Johnson to resign following the Supreme Court ruled against him when he unlawfully prorogued parliament. This has reduced chances of the UK leaving the European Union without a Brexit deal. Jeremy Corbyn said he would call for a no confidence vote – sound familiar! – only after the risk to a no deal Brexit is removed. Johnson said he had no problem with the vote taking place but said he would not resign if he lost. He is also calling for a general election but at the moment the opposition wont grant this to him until to requests a Brexit extension past the 31 October 31 deadline.  The EU has said the latest Irish backstop proposal is unsatisfactory.

The RBA must now be considering further rate cuts after poor employment results. Banks have been revising their interest rate forecasts with the NAB seeing a rate cut at both the October and December meeting which would bring the benchmark rate down to 0.5%. CBA also bought forward their predictions to a 25 point cut in October. Talk of rate cuts should keep spikes in the Aussie Dollar contained in the crosses leading into next week’s RBA policy meeting with continued easing bias dominating overall momentum. Crude Oil inventories have gradually increased over the past week bringing down the Crude price from above 60.00 to around 56.00 currently and supportive of the Canadian Dollar post Saudi Arabia attacks. 

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