Market Overview:
On the 2nd of April 2015 an agreement was put into place between Iran and a group of super power countries. The agreement essentially was to put in place with limitations to Iran producing nuclear weapons. In exchange the 6 countries involved Russia, France, China, UK, US and Germany would lift economic sanctions. President Trump has come forward recently and stated he would not support such an agreement as Iran has broken the agreement by not allowing international access to inspectors among other reasons. He has called for new sanctions on Iran and has requested congress to instigate changes. Iran’s foreign policy head Federica Mogherini has said there has not been any violation of the agreement and stated the agreement could not be negotiated. Over the week we will watch how things develop here but news alone around this could rattle markets and has the makings off investors reaching for safe haven products. Non-Farm Payroll figures disappointing to the downside Saturdays morning coming in with an increase of 164,000 for April but down on the expected 190,000 number. The US unemployment rate dropped to 3.9% from 4.00% initially increasing the value of the US Dollar but markets soon retraced to pre- announcement levels across the board. The US Dollar index remains strong at 92.55 with risk sentiment benefiting equities and commodity markets all closing up over 1%. The Reserve Bank of New Zealand (RBNZ) will announce their cash rate Thursday with no change from 1.75% expected. The Bank of England (BOE) will also announce their cash rate Thursday night NZ time and will no doubt leave the rate at 0.5% unchanged. A couple of weeks back we were pricing in a 85% certainty of a hike to 0.75% but the statistic is now under 10% with a round of disappointing economic data showing struggles with falling inflation statistics.
Australia
The RBA kept the benchmark rate unchanged last week at 1.5% extending its record breaking run. The RBA acknowledged that employment growth has slowed but still expect unemployment to dip lower gradually. Trade Balance surprised to the upside in a big way recording a huge surplus for the month of March. The surplus swelled to 1.527Billion with the markets expecting a figure around 950 Million. This is the third straight release over the 1 Billion mark. Iron Ore and coal were flat but exports of non-rural products, with a large increase in the value of cereal exports, were a big part of it. The value of cereal grains rose by a whopping 226 Million. The Australian economy has a raft of economic data to release over the next few weeks. In the past hour we have seen Retail Sales data come in a touch weaker at 0.0% vs 0.2% expected. This has weighed on the Australian dollar (AUD) somewhat. The Australian Budget is released today at 9.30 NZ time, the Treasurer is expected to announce tax cuts to middle income earners amid good government revenue which should still hold scope for a 2020-2021 surplus.
New Zealand
The New Zealand Dollar performed in a mediocre manor across most pairs during the week but managed to push higher against the US Dollar Friday after a better than expected US unemployment figure of 3.9% released. The announcement put market sentiment in a positive mood with investors selling the USD. The Global Dairy Auctions came in -1.1% versus 2.7% a fortnight ago and weighed on the NZD earlier in the week. The all important Whole Milk price fall 1.5% to 3,231. The RBNZ official cash rate will be announced this Thursday at the standard time of 9.00am and should offer the usual flurry of volatility. If the RBNZ raise rate or elude to doing so in the near to medium future we should see a higher value NZD develop. With most economic indicators along with recent rhetoric suggesting no change should eventuate until 2019 we may not see much overall price moves develop based with markets already pricing in a no change result to the New Zealand Dollar (NZD).
United States
The US Dollar has closed the week weaker against its main rivals. Falling away of broad based risk on markets. Non-Farm Payroll printed down on expectation at 164,000 jobs against 190,000 predicted. The Unemployment rate followed continuing its late 2017 downward trend printing at 3.9% which is the lowest level it’s been in 18 years. This was seen as being a sign of improvement in the markets with buyers of risk currencies selling the US Dollar. Equity markets all closed higher the DOW and Nasdaq both up over 1.4% the DOW inches towards key resistance of 24500. President Trump has highlighted he wants to renegotiate the terms of the Iran Nuclear programme put in place from the Obama administration in 2015, as he has suggested the terms of the deal are extremely one sided towards Iran with the agreement having many holes for Iran to exploit. This week Fed chair Powell speaks along with CPI figures Thursday to offer further direction.
Europe
The EURO (EUR) fell away across the board in the later stages of last week to close lower. The only currency it has strengthened against is the British Pound. Against the US Dollar it has depreciated to 1.1900 its lowest level since 28th December 2017 as downward pressure continues. Eurozone CPI figures printed down Fridayto 1.2% for April a decrease from the 1.3% March figure, showing that the ECB will be remain wary of monetary policy. Any hopes of the ECB (European Central Bank) finalising its QE (Quantitative Easing) programme by September have all but gone. A light week on the cards for the EURO with only the ECB President Draghi speaking Saturday at the 8th edition of the “State of the Union”- 1.1900 remains robust support for the EURUSD and should be treated with extreme care as a break below here could suggest support at 1.1500 could enter play as the US Dollar gains momentum.
United Kingdom
In the space of a week we have seen the chances of a Bank of England (BoE) rate hike go from 60% to 10%. On Thursday evening the cash rate is announced, but economists seem to have put aside any Bank of England (BOE) excitement of a hike after recent disappointing data. It’s possible we now may not see any further hikes until 2020. This really does make us rethink our view of the overall UK economy with slower overall growth more than likely because of lagging consumer and wage growth. Brexit concerns are still on the table with Theresa May re-convening her Brexit Cabinet committee this week. She wants to win agreement as quick as she can as she wants to push ahead with her preferred “Customs Partnership”. The British Pound has slid to 1.3490 but has made a small recovery on the weekly open to 1.3550.
Japan
The Japanese Yen (JPY) looks to have consolidated around the 109.00 area against the US Dollar ( USD) Tuesday after dipping to 108.70 and going as high as 109.40 early Monday. The Bank of Japan (BoJ) released the minutes of their March meeting reiterating that most members are in favour of continuing with current policy with the economy a long way from reaching its inflation target. Recent analysis shows us that the 10-year yield spread between the USD and Japanese Yen is the dominating factor with regards to the recent USDJPY levels. As it hovers around the 2.95% it needs to get to around 2.20% to reverse recent movement. A continuation of the trend from the low of 104.50 is still in play as the USDJPY pair eyes 110.00
Canada
The Canadian Dollar has continued its choppy behaviour against the US Dollar (USD). The US Dollar has experienced its best week in currency markets since President Trump took over the presidency. But against the Loonie (USDCAD) not so – as Crude Oil jumped to its higher level at $70 per barrel since November 2014 the Loonie has feared slightly better. Trading at the bottom of its current range at 1.2850 since mid April the CAD needs to break below 1.2800 to gain any downward momentum. Nafta talks have continued in Washington overnight as negotiators push to wrap up a deal, this could end up dragging on for months. Canadian news out this week, monthly building permits and employment change.
Major Announcements last week:
• NZ GDT Price Index -1.1%
• US ISM Manufacturing Index 57.3 vs 58.4 expected
• NZ Employment Change 0.6% vs 0.5% expected
• NZ Unemployment Rate 4.4% as expected
• UK Construction PMI 52.5 vs 50.5 expected
• FOMC leaves interest rates unchanged
• Australian Trade Balance 1.53b vs 0.68b expected
• UK Services PMI 52.8 vs 53.5 expected
• US Non-Farm Payrolls Change 164k vs 190k expected
• Australian Retail Sales 0.0% vs 0.2% expected