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As the ongoing trade war continues to put fear into currency markets we end the month of August as we started – with anxiety and uneasiness. The New Zealand Dollar started the month of August on the back-foot as the worst performing currency dropping over 6% against the Japanese Yen following on from July’s similar falls over 6%. The overall decline of the New Zealand Dollar represents not only a cut to 1.0% in the cash rate but a risk measure of safe haven buying of the Japanese Yen over the past several months. Data of late has been solid with employment at full roar and the unemployment at 3.9% which is the lowest since 2008.
This week’s headlines have been no different to what we have seen over the past 18 months of negotiating with both China and the US, no closer to reaching a deal. China is playing the long game with Trump as they appear to be in no hurry to reach a trade deal- their retaliations will come in the form of targeted measures as they set to reduce their reliance on US markets by strengthening its domestic market. China is preparing for a long drawn out battle which could last years. Strengthening their trade ties with other countries to hedge the downside to the US tariff dispute with Thailand, South Korea, South America and Japan. US trade negotiator Mnuchin says a China meeting will take place in Washington but didn’t say if a previously planned September catch up would happen. One tweet by the US president has the power to undue week’s talks between the two countries as we have seen already.
Summarising comments from governor Orr in Wyoming this week, Orr said “We aim to keep inflation low and stable and contribute to maximum sustainable employment. This is the best we can so as a central bank to promote economic well-being, The reserve bank is among the global central banking crowd – we are not alone. But we need others to assist and understand”. Yesterday’s ANZ Business confidence printed down on expectations of -44.3 at -52.3 taking the kiwi lower across the board reaching 0.6315 against the greenback.
Australia’s second quarter CAPEX report released showing a snapshot of business investment and what to expect in the future. The release came in at -0.5% from the expected 0.4% which was up on first quarter of -1.7% but highlighted soft business investment in firms. As the US and China trade war escalates this has dampened the global growth outlook and put a cloud over business in Australia. The result will flow through and impact next week’s GDP second quarter release. The ongoing economic slowdown in particularly in China will inflict further hurt on the Australian economy and could carry big job losses if Chinese growth deteriorates further.
Brexit: where does one start. Boris again is occupying front page headlines in UK newspapers with his latest announcement that he has managed to get agreement from the Queen to suspend UK parliament from 9 September resuming no later than 14 October tying in with the Queen’s speech. His move will dramatically reduce the opposition’s ability for MP’s to influence and change (block) the Brexit deal or delay it, with the move bringing on nationwide protesting. Those opposing a no deal Brexit only really have until next week when parliament returns from the summer break on September 3rd to act. A senior EU source has said “whatever happens, the EU was never going to change its position because no deal becomes ‘more credible’ or opponents of a ‘no deal’ would get better organised”. Boris still needs to submit credible options to the backstop issue although it’s unlikely this will be changed.
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