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Australia

Choppy conditions this week have seen the Australian Dollar bounce around, but a strong rally in the past 24 hours has seen the AUD currently trade just over 0.7200. Generally the Aussie Dollar has held its value on the crosses over the week with only the NZD really making gains. Australian CPI figures printed down on expectations around 0.4% from the 0.5% markets were expecting highlighting inflationary pressures remain weak. According to Aussie stats consumer price inflation grew only 1.9% to September down on the 2.1% growth through to June. Weak Chinese manufacturing data put added pressure on the Aussie along with end of month repositioning of off balance sheet risk. But then trade Balance data boosted the Aussie Dollar Thursday when figures reported a 3.02B surplus based on markets expectations on 1.71B.  Attention is now on Australian Retail Sales today and US Non-Farm Payroll tomorrow morning to close the week. Read more

Australia

The Australian Dollar continues to drift lower across the board, perilously close to long term support of 0.7040 against the US Dollar Thursday. If we see further weakness, through 0.7040, due to risk averse market sentiment we could expose key support at 0.6800 levels. Equities have affected price action over the past week or so, the 3 main indices falling over 5%. Australia was upgraded to AAA this week by Fitch as they expect Aussie GDP to be 3.3% at the end of 2018, 2.8% in 2019 and 2.7% in 2020. The government deficit is expected to drop to 0.4% of GDP by 2020. This week sees zero economic data to comment on with the overall risk off tone expected to continue. Next week’s quarterly CPI and Retail Sales will be key with Core CPI forecast to print 0.3% showing annual pace to drop back to 1.8% from 1.9% y/y.  

New Zealand

With little in the way of local led economic data the New Zealand Dollar has been restricted to mainly range bound movement. Risks adverse conditions have dominated markets with equities falling again continuing last week’s bearish mood. We think the kiwi should be weaker than it is, particularly against the US Dollar and with the massive drops in stocks, but it has shown remarkable resilience considering. NZ’s Trade Balance for September released at a deficit of 1.6 Billion the largest deficit on record. Imported petroleum products such as crude oil and a heavy weighing in exports of dairy and beef at a low point in the season contributed to the high deficit number. With NZ Business confidence down of late, hinged to the new labour government all eyes will be on the ANZ Business Confidence poll result releasing early next week. With better than expected figures last month based on improving employment and residential construction hopefully this will continue. Read more

Australia

Healthy September jobs data yesterday showed that the unemployment rate hit a seven-year low, dropping to 5% in September on the back of the continuing jobs boom in Victoria and NSW. Employment increased by only 5600 jobs in seasonally adjusted terms, but the 0.3%  decrease in the number of people looking for jobs was also a factor in the overall unemployment rate falling from 5.3 % in August. The participation rate fell from 65.7% to 65.4 %, the lowest level in 11 months. This stronger than expected result, would have come as a surprise to the RBA who had forecast an unemployment rate of 5.25 % to June 2020, reinforcing the view that the next cash rate move from the RBA is likely to be up not down. The Aussie dollar firmed after these figures, rising to 0.7132 against the Greenback. In the prevailing risk-off tone the AUD has struggled to hold onto yesterday’s gains and this morning is trading down around 0.7095. Given that the Australian equity market is trading down we look for the AUD to remain under selling pressure especially if this afternoon’s Chinese GDP, retail sales and Industrial production data disappoints. Next support level is 0.7085 but look for test of 0.7000 over next week.

New Zealand

Little in the way of economic data to drive the NZ dollar in the back end of the week.

Migration data released this morning, showed that net monthly migration slowed to 4,640 in September, the lowest monthly net inflow since 2014. That translated to annual net inflow of people into the country falling to 62,700 – the lowest level since October 2015.  Expectations are that migration will continue to ease back over the next few years, pulling population growth down in the process. This reinforces our forecasts for a period of soft demand growth over the coming years.

The NZ dollar has held up reasonably well over the week in the face of a firmer USD, making a high of 0.6598 on Wednesday, but has now drifted back to the 0.6530 level against the Greenback and will remain under pressure if the current risk-off sentiment prevails, another test of the 0.6500 support level looks likely next week. Read more

Market Overview:

Brett Kavanaugh has been sworn in to the US Supreme Court after weeks of unsettling controversy. After the FBI’s investigation into claims of sexual assault the Senate have backed his nomination by a vote of 50 to 48. This clearly falls into the hands of President Trump ahead of important midterm elections in November. Hundreds of people protested outside Capitol Hill in Washington against his nomination. The appointment to the US Supreme Court is for life and strengthens the current conservative government’s control of the nine judge panel who have final say of law. The president tweeted – I applaud and congratulate the US Senate for confirming our great Nominee to the United States supreme court. Trump also caused a stir when he said he was 100% certain the women accusing Kavanaugh of sexual assault had named the wrong person – how in the hell would he know? Mid-term US elections will be interesting with potentially many women voters to vote “democratic” in a continued show of outrage. Since the mid 60’s women have out voted men in every election, republicans should be concerned about this. US and global equities have traded off their highs from Thursday in what promised to be another week of record setting never eventuated. Markets turned ugly with the DOW falling back 200 points to close the week 1% down. The S&P and the NASDAQ also gave back gains closing down over 1% and 3.5%. US Non-Farm Payroll printed down for September at 134k based on 185k expected but an upwardly revised August figure made up for the shortfall. US Unemployment fall to the lowest level since 1969 at 3.7%. The tightening job market is contributing to push up interest rates higher – significantly the 10 year US Treasury note rose to 3.23% and hit the highest level since 2011. Notably the 2 year yield advanced to 2.89 amid strong US data. The tipping point for investors to sell equity products and buy bonds must be fast approaching and has the impact to drop current equity prices significantly for some time. The NZ Dollar continues to trade lower, the weakest currency of the G10 over the past week. At some point we should see a correction to the upside when traders and Investors bail on short positions, for the meantime this week’s quiet local economic data is light and shouldn’t offer up any changes to recent price activity. US holiday (Columbus Day) and Japanese holiday (Health Sports Day) should make for light trading conditions through to Wednesday. Read more

Australia

Yesterday morning’s Federal Reserve rate meeting took the Aussie outside its weekly range back into the 0.73’s against the US Dollar it but soon retraced lower easing to 0.7255 Thursday. Generally the Aussie Dollar has been choppy across the board only claiming victory over the kiwi, Japanese Yen and the Canadian Dollar in uncertain geopolitical times. US Fed’s Powell delivered a statement markets were expecting reiterating monetary policy would stay on its current path well into 2020 with further rate increases to come. The Aussie has endured a quiet week with no actual local economic data on the docket highlighting lighter volumes of currency trading. For now the Australian Dollar appears reasonably resilient with higher annual GDP and recent buoyant wage growth taking the currency off its recent low’s. Trade talks continue to weigh on overall Aussie sentiment after China pulled the pin on this week’s chats with Trump and his administration. Next week’s RBA cash rate meeting Tuesday will be the main event of the week, where the RBA is widely expected to keep the cash rate unchanged at 1.5%. We may get a surprise or two, Retail Sales releases next Friday.       

New Zealand

The (RBNZ) Reserve Bank of New Zealand kept the main cash rate unchanged at 1.75% Thursday as widely expected. Comments made by Adrian Orr were not as dovish as markets were predicting with Orr confirming his view that growth will gather momentum over the coming year. He also made comment that the next rate move could be “up or down” with policy to remain expansionary for a considerable time keeping the OCR at the current level until at-least through 2019 and possibly into 2020. Ongoing global trade tensions could see global growth in trouble if the situation didn’t improve with the lower New Zealand Dollar expected to support local exports. Local spending by individuals and government is expected to assist with ongoing growth with inflationary pressures expected to rise. Read more

Market Overview:

This week kicked off with Asian equities lower, as stocks in Hong Kong fell with U.S. equity futures and the Australian dollar after China withdrew from planned trade talks with U.S. officials, potentially triggering an escalation in the protracted tariff war between the world’s two-biggest economies, as additional trade tariffs came into force on Monday. The escalation in U.S.-China trade tensions will test two strong weeks of gains for Asian equities that lifted stocks off this year’s lows in part due to optimism that economies can weather the hit from trade restrictions. Investment bank JPMorgan Chase & Co commented that it was factoring into its strategy, a growing potential for a “Phase III” of the trade war next year affecting all Chinese imports, which would lead to weaker Chinese growth and hit U.S. stocks. Also of main note this week is the Fed rate decision at Wednesday’s FOMC meeting, where the Fed is expected to increase interest rates by 0.25% for the third time this year, with the market increasingly pricing in a fourth rate hike in December given the solid economic results still flowing from the US. On currency markets, look for the stronger USD trend to continue and the EUR to remain under pressured with the stronger USD and Brexit issues. The GBP continues to swing at the mercy of Brexit headlines and now the wildcard of a snap UK election (in our view unlikely) with any upside severely limited. The Australian and New Zealand dollars will very much remain driven by offshore sentiment although the RBNZ rate decision on Thursday may provide a local diversion (no rate change expected but forward projections will be closely watched). Read more