FX News

NZD and AUD trade higher on risk appetite

Contact us for a free online quote

Australia

The Australian Dollar outperformed its rivals over the week with a general improvement in market risk and supporting Australian economic data. The RBA left rates unchanged at 1.0% as widely expected with Lowe delivering a speech markets perceived to be less dovish. Lowe said risks were still tilted to the downside but with uncertainty on the horizon left the door open for further rate cuts as required. Trade Balance posted a surplus of 7.291B for July a decrease of 709M seen in June but still slightly ahead of expectations of 7.2B and quarterly GDP published bang on expectations of 0.5%. Against the greenback the Aussie made a strong come back rallying to 0.6875 reversing a chunk of the past six weeks of losses. On the calendar this week we have NAB Business confidence followed by Westpac consumer confidence.

New Zealand

The New Zealand Dollar closed up every day last week against the US Dollar and the Japanese Yen, earning the tag the best performing currency from the G10. Ironic given no local economic data published, most price action was due to positive risk sentiment. Business Manufacturing Index releases on Friday the only significant data, with the index falling into contraction in July for the first time since August 2012, we are expecting a print similar with pressure mounting on the sector. Further optimism around positive trade talks by China and the US may continue to affect the kiwi this week building on its current higher form.

United States

US Non-Farm Payroll figures were down on expectations Friday printing at 130,000 compared to 163,000. This followed a downwardly revised July from 159,000 to 164,000. Average hourly earnings or wage inflation rose 0.4% from the predicted 0.3% still showing good growth while unemployment remained unchanged at 3.7%. This result suggests the economy is not running into trouble just yet with markets overall having a gloomy outlook, the economy is in better shape than investors think. Speaking Friday on a panel in Switzerland Federal Reserve chairman Powell said the Fed isn’t expecting a recession and the US economy is in a good place. He went on to say a Fed rate cut was expected this month at the next meeting on the 19th September. Monday mornings Chinese exports to the US dipped in August as trade tariffs drive home the impact of Trump’s recent tariff increases. Exports to the US in August dropped a whopping 16%. This week’s calendar looks light with monthly CPI Friday followed by Retail Sales m/m.

Europe

The European Central Bank is expected to cut rates this week on Thursday and have signalled in earlier statements that further stimulus was coming to support the failing eurozone economic situation. In July the ECB left rates unchanged but Draghi made it very clear he would rebirth a Quantitative Easing program to boost growth. Although a rate cut seems to be a done deal the uncertainty is with the QE package and just what this looks like. We suspect something to the tune of 70B per month for 9 months for a total stimulus size of 630B. The package though could go well into 2020 in line with poor inflation projections. The EUR clawed back some losses coming off a low of 1.0920 against the big dollar to reach 1.1070 but we suspect downside bias will return this week.

United Kingdom

A bill to stop Boris Johnson from taking the UK out of the European Union on the 31st of October was passed late last week, agreed by the house of lords and just needs royal signoff before becoming law. The bill is set in stone as legally binding, Boris Friday said he would rather be “dead in a ditch” over demand an article 50 extension. It is rumoured that that Johnson may still need to request an extension on the 19th October to push the deadline back 3 months through to 31 January 2020. If Johnson is to avoid this event two scenarios could still happen. MP’s approve a brexit deal in another vote, MP’s vote in favour of leaving the EU without a deal. The second highly unlikely. Its BJ himself who needs to request an extension directly to the president of the EU. In theory BJ could refuse to write such a letter, which could open a slew of legal issues. Even if BJ does end up requesting an extension it’s not a dead cert the EU will grant it, remember there is still only one Theresa May Brexit deal which has been denied approval three times. The Pound received a boost Monday after better than expected UK manufacturing and monthly GDP both publishing higher. GDP m/m came in at 0.3% compared to 0.1% forecast the best read since January this year.

Japan

The Japanese economy grew by less than we were expecting for the second quarter GDP. Over the past three months businesses have been wary of investing amid global trade uncertainty. The economy expanded by 1.3% following 2.2% in the first quarter but lower than the 1.8% estimate. Some Japanese analysts are expecting the Japanese economy to slip into recession in the fourth quarter period. Capital spending rose in the second quarter 0.2% but was sharply lower than the predicted 1.5%. The Japanese Yen will remain under pressure as positive risk mood dominates price moves for now. Watch for further pre-meeting headlines in the China/US trade war to add volatility.

Canada

The Canadian Dollar extended gains into the weekly close following Canadian employment that surged by 81,000 in August, surprising markets coming in well above the 20,000 consensus. The Bank of Canada earlier in the week left their benchmark rate unchanged at 1.75% for the seventh straight occasion and stopped short of identifying any need to cut in the near to medium term. Although wage price inflation struggles a bit unemployment remains stable at 5.7%. As the trade war between China and the US continues, this is putting increased pressures on industry. As President Trump August threat to impose tariffs on 300B of Chinese products the energy sector was hugely impacted, crude oil prices dropped by the largest value in over four years. Trump subsequently backed off. Crude oil sits around 57.00 per barrel but has scope to go much lower in the months to come dragging the Loonie with it.  We have no Canadian tier one data on the calendar this week.

Major Announcements last week:

• Australian Retail Sales prints at -0.1%, 0.2% expected
• RBA keep cash rate at 1.0%
• US Non Farm Payroll published lower at 130k based on expectations of 163k
• US Unemployment remains at 3.7%
• Pound rallies on Brexit news
• Bank of Canada maintain their cash rate at 1.75%
• Canadian jobs numbers print well at 81,000 from 18,000 expected and unemployment stays at 5.7%

Contact us for a free online quote

Previous ArticleNext Article