Market Overview:
The long Easter weekend made for quiet markets, Equities and Commodity markets were both closed Good Friday. FX markets ticked along behind the scenes while in thin trading conditions. Trade talks between the US and China continued dominating the news as a potential for an intl “trade war rises. Initially President Trump was open to negotiations earlier last week bringing risk to the table and giving markets initial optimism. This was soon transposed as buyers sought the US Dollar (USD) and safe haven investments with fresh discussions spooking markets again. President Trump highlighted he was not going to be an easy target initially announcing he was to tariff over 60 Billion worth of imported Chinese products on March 22. China retaliated punishing American Foods, wine, fruits and frozen pork with their own 25% tariffs on around 128 products. This is in direct response to what President Trump calls intellectual property theft with technology transfer policies requiring companies to share technology with Chinese companies to have business interests in China. President Trump claims these rules in place are unfair and allow the China government to abuse American technology. Where it could get super ugly is if the recent moves could push China to introduce taxes on American firms which rely on Chinese manufacturing to keep costs down, as we know wages in china are lower than they are in the US. This week we should see further cages rattled but suspect that China may be interested to calm things down with a proper meeting rather than continue with mudslinging. This week should see plenty of volatility also with the Reserve Bank of Australia (RBA) announcing their cash rate later today and US Non-Farm Payroll at the end of the week. The US Dollar index should continue to trade above the 90.00 handle unless we get a correction lower based on renewed risk sentiment.
Australia
The Australian Dollar (AUD) remains one of weakest of the G10 players losing strength across the board during volatile market trading prior to Easter break. Equities and commodities are significantly weaker as risk sentiment dropped the S & P over 2%, the DOW also coming off 2% along with the Nasdaq, Trump leading the demise over nasty trade discussions with China taking a turn for the worst. The RBA today will keep their cash rate unchanged at 1.5% as governor Low has stipulated several times they are in no rush to raise rates. The following statement will need to be hawkish to support a depreciating Aussie Dollar (AUD). Retail Sales and Building Permits with Trade Balance all release later in the week and should offer resistance for further AUD falls.
New Zealand
The New Zealand economy had a quiet week with limited market makers at the table over Easter Break. Trade Balance printed at 217M better than the expected -100M and ANZ business confidence printed benign. This week we have another Global Dairy Auction, with the index showing down 1.2% on expectations on the 20th March dairy farmers will be expecting a rise in milk prices after earlier prices in the year reflected growth. Ongoing trade talks will be the key mover of the NZD this week with the Trump government looking to continue with tariff talks with China. Markets have hung of every news release, this will continue to affect risk sentiment leading into the US Non-Farm Payroll release Friday.
United States
The US Dollar (USD) kicked of the week around 90.10 on the US Dollar Index, with support still lying with the Dollar (USD) from late last week. Risk in the markets based on current US/China trade talks has been the key mover of prices. President Trump continues to push for further international trade rules and tariffs with China which remain a threat for a possible trade war. Currently the ball is firmly in the USA’s court with China urging trade talks, they have had no real response from the US in terms of a resolution meeting. Markets remain nervous a trade war could be close with the door closing on what could end in long term damage between the two countries. Trump has declared the (DACA) Deferred Action for Childhood Arrivals “dead” saying he will press congress to immediately pass legislation to close the borders between the US and Mexico. A program introduced by the Obama administration, Trump said we must stop the inflow of drugs and people as our country is being stolen. Congress is unable to pass immediate legislation as law makers are on their “spring recess”. Non-Farm Payroll is released at the end of the week which is widely awaited by markets, expectations are for a better than expected number to support other recent US positive data releases.
Europe
The EURO (EUR) has closed the week lower against the US Dollar (USD) at 1.2320 in thin Easter trading conditions. Early last week it soured to a fresh high of 1.2470 in risk on markets, but this level could not be sustained and the EURO (EUR) dropped back to 1.2280. The pair started the week on a positive note advancing to 1.2340 but fall back as equities came under selling pressures and renewed concerns of US/China trade wars. China announced Sunday that they would tariff 25% on hundreds of US agricultural products. The week should end in a flurry of activity as it normally does when US Non-Farm Payroll numbers publish.
United Kingdom
The British Pound (GBP) has not been able to sustain its recovery last week against a buoyant USD. Early on it made a positive statement in risk on markets as it rallied to a high of 1.4245 before dropping back to hold above the crucial 1.4000 to trade at 1.4050 in holiday thinned markets. The current account printed -18.4B but failed to create any GBP interest leading into Easter. This week Construction and Manufacturing figures are published along with BoE governor Carney speaking Saturday. Expect fresh momentum in prices if data outperforms. The UK is still coming to terms with Brexit realities with large bills piling up and border issues still to be resolved. With an expectation on the BoE (Bank of England) to hike rates twice in 2018 we should see a fresh wave of bullish moves higher.
Japan
The Japanese Yen (JPY) continues to lose ground over the US Dollar (USD) as it comes off the low of 104.60 trading back over 106.30. Easter Holidays made for light trading conditions with the market makers still to return to the markets. Last week the Japanese yearly Core CPI printed better than expected at 0.8% and gave the JPY a boost but the general theme was risk on as President Trump drove buyers to risk currencies after China/US trade discussions turned positive, the JPY slipped lower. The Japanese Yen has opened lower post Easter as the Tanken survey found large manufacturers less confident in the first quarter of 2018 where most were worried about the strength of the JPY. Household spending is released at the end of the week otherwise another quiet week for the Japan.
Canada
The Canadian Dollar (CAD) broke the US Dollar (USD) momentum late last week dropping out of its current bearish range channel. This is a success for the Canadian Dollar (CAD) after weeks of continued weakness against the greenback. The Canadian Dollar (CAD) is not yet in the clear as it will need buyer support over the week to avoid trading back at 1.3115, currently around the 1.2900 level the pair still looks bullish trading well above the 40 days moving average. Monday the Canadian Dollar gained a little support with a lack of US buyers in the market pushing lower to 1.2870. With Global markets shut down over Easter the pair looks happy to keep within current ranges and wait for this week’s Non-Farm payroll figure for further direction. Technically we suspect buyers could push the pair back over the psychological 1.3000 mark.
Major Announcements last week:
- US and China continue trade Talks
- NZ Trade Balance prints 217k
- US CB Consumer Confidence prints 127.7 based on 131.2 expectation
- US Q GDP 2.9% over expected 2.7%
- German prelim CPI m/m releases at 0.4% worse than 0.5% expected
- Canadian m/m GDP prints at -0.1% worse than 0.1% expected
- US Unemployment Claims 215k over 230k expectation