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Australia

The Australian Dollar outperformed its rivals over the week with a general improvement in market risk and supporting Australian economic data. The RBA left rates unchanged at 1.0% as widely expected with Lowe delivering a speech markets perceived to be less dovish. Lowe said risks were still tilted to the downside but with uncertainty on the horizon left the door open for further rate cuts as required. Trade Balance posted a surplus of 7.291B for July a decrease of 709M seen in June but still slightly ahead of expectations of 7.2B and quarterly GDP published bang on expectations of 0.5%. Against the greenback the Aussie made a strong come back rallying to 0.6875 reversing a chunk of the past six weeks of losses. On the calendar this week we have NAB Business confidence followed by Westpac consumer confidence.

New Zealand

The New Zealand Dollar closed up every day last week against the US Dollar and the Japanese Yen, earning the tag the best performing currency from the G10. Ironic given no local economic data published, most price action was due to positive risk sentiment. Business Manufacturing Index releases on Friday the only significant data, with the index falling into contraction in July for the first time since August 2012, we are expecting a print similar with pressure mounting on the sector. Further optimism around positive trade talks by China and the US may continue to affect the kiwi this week building on its current higher form. Read more

Below are the weekly economic releases for this week (NZT)

Monday 09/09

• 830pm, GBP, GDP m/m
  • Forecast 0.10%
  • Previous 0.00%
• 830pm, GBP, Manufacturing Production m/m
  • Forecast -0.30%
  • Previous -0.20%
• 9th-15th, CNY, New Loans
  • Forecast 1200B
  • Previous 1060B

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The New Zealand Dollar has retained recent gains this week with no local data publishing, as markets rebounded off better risk sentiment. Equity markets responded higher into Thursday jumping over 1%. Hong Kong leader Carrie Lam has finally retracted the extradition bill that has sparked months of protesting on the streets of Hong Kong saying it was in line with public concerns bringing investors back into risk.     

The Australian Dollar has outperformed its peers with supporting data and a less than dovish RBA Tuesday. The RBA left rates unchanged at 1.0% and delivered a statement which markets perceived as less dovish than predicted. Inflation expectations are to remain under 2.0% through to 2020 with growth supported by low rates, tax cuts and a potential turnaround in the housing market. Lowe said risks are still tilted to the downside with general uncertainty and kept the door ajar for further easing. Yesterday’s Trade Balance registered a surplus of 7.291B for July a decrease of 709M seen in June but still slightly ahead of expectations of 7.2B. The news sent the Aussie higher to 0.6820 against the greenback.    Read more

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Australia

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. The result could flow through and impact this week’s GDP second quarter release on Wednesday. But first is the RBA’s monetary policy meeting on Tuesday with forecasts widely pricing in no cuts from the current 1.0% until November this year. The RBA have said they remain ready to cut if needed but with recent data they are not expected to shift their cash rate target largely based on key consideration around stable unemployment and job creation forecasts. With the Aussie trading close to long term low against the greenback we expect this week’s action to be well supported above the 0.6700 level.

New Zealand

Month end currency positioning bought fresh volatility to markets Friday with the New Zealand dollar closing bid. Yesterday’s US Holiday saw lower than expected trading volume across the board with the kiwi bouncing around the 0.6300 area. The word is the kiwi could push higher over the week on fresh anticipation of renewed upside based on general risk prospects. Summarising Orr’s comments from Wyoming last week, Orr said “We aim to keep inflation low and stable and contribute to maximum sustainable employment. This is the best we can do 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”. He urged the government and businesses to take advantage of low interest rates and invest. Read more

Below are the weekly economic releases for this week (NZT)

Monday 02/09

• 145pm, CNY, Caixin Manufacturing PMI
  • Forecast 49.8
  • Previous 49.9
  • Actual 50.4
• All Day, CAD, Bank Holiday

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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. Read more

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Australia

With most central bank governor’s speaking at the Jackson Hole Symposium over the weekend RBA’s Lowe didn’t disappoint. Lowe pushed the notion that governments should be doing more to increase respective economic growth. He warned that central banks only had a finite amount of tools in the shed to combat slowing growth. “Monetary policy cannot deliver medium-term growth, we risk just pushing up asset prices” Lowe said. As an alternative he called for more structural reforms and investment in infrastructure. These measures have been spoken about by the Bank of Japan and the ECB in recent times – as central banks continue with easing policy in the medium term we will see more rhetoric on this. Australia is not part of the G7 with the yearly meeting taking place in France at the moment, but this year Scott Morrison has a special invitation as an observer. He will attend the digital transformation session and talk again as he did at the recent G20 about the crack down on extremist online material and social media. Building Approvals print Friday.

New Zealand

The New Zealand Dollar held off depreciating further on Friday in the wake of President Trump increasing tariffs on China and raising the stakes in the ugly trade war. The kiwi traded off its lows across the board spiking higher after Adrian Orr spoke at the Jackson Hole Symposium. He said the 50 point rate cut set on the 7th August was a pre-emptive strategy to get ahead of the curve and reduce the need of further cuts. He said the NZ economy was in a good position and would like to see businesses investing more but realised the global outlook was holding back optimism. If other central banks keep easing policy this could become a problem for the NZD if investors opted to hold the kiwi based on return. Orr said the RBNZ is ready to act as necessary “we will do whatever it takes”. This week’s calendar is quiet with only ANZ business confidence Thursday. We suggest reasonable volatility this week for the local currency with safe haven assets preferred.

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Below are the weekly economic releases for this week (NZT)

Monday 26/08

• All Day, GBP, Bank Holiday
• Day 3, All, G7 Meeting

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Australia

Australian employment figures published solid late last week with the workforce growing by 41,000 after 14,000 was expected. This helped to boost buying in the commodity currency especially after prices rose in US equities at the end of the week. We view this week’s movement limited to the topside with tensions around global risks weighing heavily. Iron Ore still looks to continue its bearish momentum seen since early July putting added stress on the Aussie. This week’s local focus is on the recent RBA meeting minutes today at 1.30 NZT. Lowe will also speak at the Jackson Hole Symposium at the end of the week. Forecasters are predicting an RBA rate cut in November and another in February 2020.

New Zealand

Early Monday the New Zealand Dollar was boosted by better than expected Services PMI numbers for July with figures showing an improvement of 54.7 with the June Index also being revised up to 53.0 from 52.7. The kiwi will need more positive data to improve the overall mood. It seems to have consolidated just above the 0.6400 mark against the big dollar which is surprising given the recent shift in policy by the RBNZ when they cut the cash rate from 1.5% to 1.0%. On the whole the NZD had a poor week across the main currencies only rising against the Euro and Japanese Yen as risk fears eased slightly. Focus will be on the Jackson Hole meeting in Wyoming by central bankers with Powell set to speak for the first time since recession fears spooked markets last week. We expect the kiwi to remain heavy into Friday. NZ Retail Sales prints Friday. Read more