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FX Update


Retail Sales figures published Tuesday came in light as we expected at -0.4% instead of the 0.0% markets were expecting putting the Aussie under pressure. The RBA left rates unchanged at 1.50% as it has done since mid-2016 saying downside risks remain over the following two years as they suggested a possible downgrade to the GDP forecast. Markets reacted with relief with the AUD recovering well into Tuesday evening sessions. Wednesday saw the Australian Dollar hit hard after news out in a speech by RBA governor Lowe adopted a more neutral bias, suggesting the economy could be weaker than forecasts suggest, the AUD against the big Dollar dropping from 0.7240 to 0.7100 Thursday. Lowe went on to say the RBA could cut rates if jobs growth deteriorates and the unemployment starts to climb.   

New Zealand

Waitangi Day Wednesday made for quiet local trading in the New Zealand Dollar, in fact except decent movement in the Aussie Dollar one could have argued Waitangi Day affected the whole market. US stocks were benign and Crude Oil also had no real change. The Kiwi however started to show signs late during the overnight sessions Wednesday what it was starting to feel the effects of some selling perhaps a by-product of the Aussie falling so hard, or perhaps a sign of things to come. Thursday’s employment figures for the fourth quarter showed the employment rate jumped from 4.1% to 4.3% reflecting a spike of 10,000 were added to the cue which was made up of 8,000 unemployed men and 2,000 women. This is the first time since 2010 that the figure was lower for women than men. Immediately after the news the kiwi was sold off across the board falling to 0.6770 against the greenback. The global dairy auction took place Wednesday night and published good numbers with prices up 6.7% on good quantity. These results only offered slight momentary relief for the kiwi.   

United States

President Trump delivered his second “state of the union” address Wednesday. He tried to cast his views as bipartisan amid ongoing feuds over immigration after the longest government shutdown in US history. Trumps speech comes after the Democrats and Republicans remain locked over government funding to build a Mexico wall. The current government funding comes to an end on the 15th of February. A resolution is not expected to be forthcoming before the date which could lead to further government shutdown and a possible “state of emergency” scenario. The main points to come out of his speech were:- Border wall and immigration, pushing claims that one is needed to keep out “ruthless coyotes, Cartels, human traffickers, and drug dealers.”- US women in the US workforce and gender equality.- No more wars, he talked at depth around his decision to withdraw troops from Syria and put an end to the war in Afghanistan, the US has spent more than an incredible 7 Trillion in the region over the past 19 years. As above Trump tried to pass off his own agenda on US/Mexico wall as not a Democrat/ Republican agenda but one in the best interests of the “American people,” adamant that funding is required as he so dearly promised during his pre- election speeches. We have a couple of Fed member speeches to end the week, apart from this no real data is due. Next week’s economic docket is massive and should ensure plenty of broad based movement.

United Kingdom

The Bank of England (BoE) left the benchmark cash rate unchanged this morning at 0.75% voting 0-9 in favour of a remain. Comments from the BoE’s Mark Carney suggested a rate hike in 2019 wasn’t ruled out but this largely depends on Brexit and what happens over the next 50 odd days before they bow out of the EU. So a dovish slant overall with the Pound Initially dipping but recovering well towards the close of the NY session. Theresa May has not yet secured any changes to the current agreement with the EU stern in their view they won’t be making variations to the proposed deal.  MP’s earlier voted to seek an alternative arrangement to ensure the northern border stays open after Brexit. The problem is the Irish border forms a significant part of the Brexit agreement, of which the EU have already said they are unwilling to negotiate this aspect of the Brexit agreement. The British Pound has slid back through 1.3000 this week against the big Dollar down to 1.2960 and looks to continue this momentum for a while with a combination of USD strength and continued Brexit hangover. Next week on the calendar we have monthly GDP and CPI y/y then Retail Sales.  


The European Union Economic Forecasts report was released overnight.  This serves as the EU’s basis for overall economic performance over the next two years and covers around 180 subjects. The report highlighted a cut to the Eurozone economic growth forecast for 2019 because it expects the area’s biggest countries will be held back by global trade tensions. Inflation has also been revised down for this year to 1.3% from the 1.9% in 2018. With recent economic data still disappointing in the Euro zone chances are increasing for a continued slowdown, especially in Germany which encounters capacity constraint and suffers from reduced demand. Any chance the ECB will hike rates in the next 6-8 months look slim. Bringing economic factors into play we see a decline in the EUR over the next while as it possibly could fall back to early November 2018 levels around 1.1200 in the medium term especially when we consider a USD which should continue to strengthen.  This week the EUR has fallen in value against the US Dollar to 1.1360 – considering at the open the pair was trading around 1.1470 this is a significant drop which is based on US Dollar strength and an overall pessimistic recent view of market conditions.     


The Japanese Yen has eased off the 110.15 early week high against the US Dollar to 109.90. Mindful of further USD Strength on the horizon after last week fantastic Non-Farm Payroll numbers the pair well may be back trading above the significant 110.00 zone soon. The Japanese safe haven buy has been off the table this week with a lack of meaningful geopolitical data to be excited about.  The Japanese unemployment rate came in lower than the expected 2.5% at 2.4% along with manufacturing numbers which are also showing growth with the index at 50.3. Japanese Average Cash earnings y/y which is the total value of employment income collected by workers in 2018 is released today and is expected to show a nice lift to 1.7%, 2017 result showed 0.9%. Japanese National Foundation holiday Monday.    


The Canadian Dollar (CAD) has been the best performing currency in 2019 well outperforming all other major currencies. This month the USD has been the stronger performer reversing last week’s declines back to 1.3240 after the CAD closed the week at its best 2019 level around 1.3095, the pair was last trading at this level back in early November. Crude Oil is still holding over the crucial 53.50 mark and importantly consistently well over $50.00 per barrel now. Oil production continues to exceed forecasts. Even though the rate of growth (or price) has slowed over the past few months the (EIA) Energy Information Administration prediction of $61.00 per barrel looks a tad conservative in our view. Levels around 1.2800 low of Sep 2018 are not far away. The Canadian Employment data out later in the week should highlight a stable jobs market and improving economy.   

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