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Central Bank speak the focus- NZD/AUD holds 0.9380

Ian Dobbs

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The Australian calendar looks scant this week with just the RBA releasing monetary policy minutes from the November meeting. This should not bring any surprises from recent policy and have little impact on the Aussie. Australian unemployment rose from 5.2% to 5.3% last week broadly assisting to underperform the currency. Full Time employees and part time employees both declined in the month of October. With the total number of people added to the labour force around 310,000 with an average per month increase of 25,000 this continues to be well above the employment trend of the past few years and no real cause of concern for the RBA.

New Zealand

Adrian Orr last week left the official cash rate at 1.0% and said it wasn’t his intention to surprise markets. Most expected a cut of 25 basis points with investors backtracking open short NZD positions post release when the NZD surged higher.  This made the New Zealand dollar the week’s strongest performer against its G10 peers as most other central banks are holding easing policies.  Further easing by the RBNZ could still happen if the economy warrants it.  Interest rates will need to stay at low levels for a long period until inflation reaches the midpoint of the target level of 1-3%.  The New Zealand House Price Index lifted 3.9% year on year to October nationally with the Median House Price now 607,500 up from 595,000 a jump of 2.1% m/m. This is also a 8.2% increase y/y from October 2018 figures of 561,500.

United States

A fresh bout of optimism across currency markets Friday saw risk appetite lift, also boosted were equities and associated commodity prices. Conversations have taken place between US Treasury Steven Mnunchin and trade representative Lighthizer with Chinese premier Liu He about a “phase one” trade deal. Both sides have apparently had constructive talks, with US officials reporting that the two sides were close to locking in a deal.  We have had conflicting reports over recent days when talks ended in a stalemate after the US pushed Beijing for clarity over intellectual property rights. US farmers will get another cash subsidy this week, the second part of a three part 16 Billion aid package announced by Trump in May. There has been no further clarity if Trump has accepted China’s demands that the current tariffs be pulled back. Their still seems to be huge differences between China and the US, although we have seen markets stabilise and perk up with optimistic headlines – overall we suspect any deal could be some time away.


Last week’s German economic sentiment and German prelim quarterly GDP for the third quarter were positive with Germany narrowly avoiding slipping into a recession with GDP at 0.1%, a close call. The Euro bounced higher to close the week higher than most of its rivals after the news and improved risk appetite in the China/US trade talks. I’m not sure you could call 0.1% significant growth but the numbers don’t lie and for now the news will buoy sentiment in the Eurozone for a while. ECB’s Muller said the central bank could buy unconventional assets if the situation in the eurozone deteriorates further. The ECB is currently buying up nearly all of its government bonds of 20 Billion EUR per month. On the calendar this week we have French and German Manufacturing releases.

United Kingdom

It’s a quiet week ahead for UK data so here is a summary of where we are with Brexit for anyone who is still interested.

The UK voted to leave the UK in 2016, recently the English government asked the EU to delay the 31 October data to 31 January 2020.
This request was agreed by the EU, however the UK can leave earlier if the UK and EU approval any withdrawal agreement before the date.
We still have a possibility of a “no deal” Brexit if it not agreed by all parties before 31 January 2020
If the UK and EU agree to a Brexit agreement a transition period starts. That will see us through to December 2020. During this period the EU and UK current governing rules will still be in place. Nothing will change for businesses and the general population.
The transition period can be extended once only by up to two years, this would take us through to 31 December 2022

The UK have a General Election booked for the 12th December 2019
The Brexit outcome will depend on what happens in the Election.
The 5 options are:
• Brexit comes in 31 January 2020
• Renegotiation of the Brexit deal
• Referendum- similar to the one held in 2016
• Brexit is cancelled- This will only eventuate from a change of government who could revoke article 50
• No Brexit on 31 January 2020-  If no Brexit is passed by 31st January 2020 this is the default position


Positive headlines in the US/China trade negotiations have kept a lid on any decent Japanese Yen moves or momentum of late, investors instead have concentrated on risk crosses leaving the JPY behind. However, although the previous week was generally “risk on” supportive, this week may not be so glamorous for these related assets including the kiwi. Fears are becoming heightened in the Hong Kong protests and the Brexit political environment, not to mention between Iran and the US, with the US criticising Iran of supporting terrorism. This week’s Trade Balance and flash Manufacturing in Japan will hold the main focus but I sense the safe haven JPY buyers just may get the better of markets this week.


With no data publishing over the last week or so for the Loonie, the currency eased lower for the third week straight as macro geopolitical themes impacted. The Canadian Dollar (CAD) losing over 1.85% of its value against the NZD since late October. Looking ahead we have Manufacturing data Wednesday then CPI m/m printing Thursday and Retail Sales Friday to get the blood flowing. Monthly CPI for October will grab most of the attention after posting a poor September number of -0.4%. In July the Canadian Central bank projected inflation is 1.8% ending 2019 with 1.9% at the end of 2020. Currently the year to date to September is 1.9% a five month low with declines in gasoline prices having the biggest impact.

Major Announcements last week:

• RBNZ leave rates on hold at 1.0% surprising markets
• US CPI m/m prints up at 0.4% from 0.3% expected
• Australian Unemployment rises to 5.3%
• Germany avoids recession with a growth number of 0.1% for third quarter
• UK General Election polls show the Tories leading.

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