FX News

As economic demand bounces back in the US this should cause inflation to rise. Many expect the Fed to reduce the size of its asset purchasing program soon. Buying bonds is one of the products a govt uses in order to keep interest rates low, maintain growth and keep an economy from deflating when times are rough and growth is slow. A move to decrease the value of government bonds would raise yields and have a flow on effect to equity markets making them less attractive relative to buying bonds. So as equity markets devalue so do risk products including the commodity driven New Zealand Dollar. Our Autumn and Winter months are historically not big moves for rises in US stocks thus we view selling pressures could be on the horizon for the kiwi over the coming months. Read more

Market Overview

• Worldwide coronavirus cases surpass 154.173 million with over 3.226 million official
Deaths.
• UK Bank Holiday Monday “May Day” created thin liquidity in markets.
• India’s wave of coronavirus infections has been described by WHO’s Director General as “beyond heart-breaking”- India’s new cases rose by 368,147 Sunday bringing the total to 19.3M cases and 218,959 known/recorded deaths.
• Fed’s Moody has revised up GDP growth for 2021 to nearly 7% and to over 5% in 2022. He also puts the first rate hike into 2024.
• Germany reports 9,160 new coronavirus cases in the Monday update.
• The US Dollar is typically strong in May- its best month with the currency rising in 9 of the last 11 years.
• The FDA is set to approve the Pfizer vaccine for use on people between the ages of 12-15 over the next week.
• As India’s coronavirus numbers continue to soar, there are calls for a national shutdown to fight off further infections and deaths. Read more

Monday 03/05
All Day, JPY, Bank Holiday
All Day, CNY, Bank Holiday
All Day, GBP, Bank Holiday

Tuesday 04/05
6:20am, USD, Fed Chair Powell Speaks
All Day, JPY, Bank Holiday

Wednesday 05/05
10:45am, NZD, Employment Change q/q
Forecast 0.30%
Previous 0.60%
10:45am, NZD, Unemployment Rate
Forecast 4.90%
Previous 4.90%
11am, NZD, RBNZ Gov Orr Speaks
All Day, JPY, Bank Holiday
All Day, CNY, Bank Holiday
1:10pm, NZD, RBNZ Gov Orr Speaks

Read more

Market Overview

Risk sentiment deteriorated towards the end of the week as President Biden’s Capital Gains Tax hit the wires. The increase to capital gains tax from 20% to 39.6% of all income over $1M earned was initially seen as a kick in the guts to the wealthy, and it is. However, it was explained that only a very small percentage of people- just 0.3% will actually be affected. This in turn brought about US Dollar demand taking the NZD lower broadly. All time record highs in US equity indices extended from Friday highs taking the Nasdaq to 14138.78 and the S&P to 4187.74. The DOW Jones Index lagged, closing lower at 33981 from 16th April’s all time high at 34200. In true risk fashion as risk products benefited so did the New Zealand Dollar as it climbed to 0.7242 against the greenback into Monday trading. The last time we saw a daily close above the 0.7300 zone was back in April 2018. This is certainly a level to watch. Read more

Tuesday 27/04
Tentative, JPY, BOJ Outlook Report

Wednesday 28/04
8am, CAD, Bocages Gov Macklem Speaks
1:30pm, AUD, CPI q/q
Forecast 0.90%
Previous 0.90%
1:30pm, AUD, Trimmed Mean CPI q/q
Forecast 0.50%
Previous 0.40%
Tentative, All, OPEC-JMMC Meetings

Read more

FX Update: 

New Zealand first quarter 2021 CPI released midweek at 0.8% up on the fourth quarter 2020 and accelerated 1.5% from the same time in 2020, picking up from 1.4% in the fourth quarter y/y matching forecasts. Transport prices led the way rebounding up 1.7% from -3.7% in the fourth quarter. Meanwhile the cost of building a new house was up 1.2% or 3.5% y/y along with rental prices up 1.0% for the quarter and 2.7% annually. This gives a sign the central bank may not have the need to cut interest rates any time soon. The bank projects they will be well through 2.0% inflation by the end of 2021.    Read more

FX Update: 

RBNZ handed out no surprises last week when they left the policy settings in place with the official cash rate remaining unchanged at 0.25% and no changes to the large-scale bond purchases or funding for lending programs for banks. Inflation is expected to jump higher this year from the current 1.4% to well over the 2.0% target point with pressures on import prices and global supply chain disruptions and rises in shipping costs. Most banks expect the OCR to remain unchanged until 2025. I’m not sure they can accurately predict what happens in the global economies 4 years out – as we know 6 months of economic reporting in these coronavirus-fuelled times can look vastly different to forecasted predictions as we have seen. The biggest changes recently to the government’s mandate is housing and the recent changes to loan to value ratios, investment property tax, and how they will react going forward to stronger property prices.  Read more

Wednesday 21/04
10:45am, NZD, CPI q/q
Forecast 0.80%
Previous 0.50%

Thursday 22/04
2:00am, CAD, BOC Monetary Policy Report
2:00am, CAD, BOC Rate Statement
3:00am, CAD, BOC Press Conference
11:45pm, EUR, Monetary Policy Statement

Friday 23/04
12:30am, EUR, ECB Press Conference
7:15pm, EUR, French Flash Services PMI
Forecast 46.6
Previous 48.2
7:30pm, EUR, German Flash Manufacturing PMI
Forecast 65.8
Previous 66.6
7:30pm, EUR, German Flash Services PMI
Forecast 51.1
Previous 51.5

FX Update: 

These are strange times we live in, House prices are going through the roof and we have fresh talk of a double-dip recession.

Wednesday’s RBNZ policy meeting was overall dovish with the central bank maintaining its record low rate of 0.25% and keeping current policy in place. 

The Government Bond purchase cap of 100B NZD stays in place with the central Bank saying – it will take “considerable time and patience” for the banks goal of 2.0% inflation target and employment goal of under 4.0% (maximum sustainable) to be achieved. The central bank is expecting inflation to click above 2.0% which will be mostly driven by supply disruptions originating from the pandemic. We expect the RBNZ to leave rates on hold until well into late 2022 at the very earliest. With fourth quarter GDP coming in at a surprising -1.0% the economy is staring down the barrel of a new economic recession if first quarter 2021 prints negative as well. This data is announced on the 16th of June.  Read more

Market Overview

• Worldwide coronavirus cases surpass 133.002 million with over 2.885 million official
Deaths
• Prime Minister Jacinda Ardern announced a New Zealand- Australia travel free bubble starting from the 19th of this month
• Australia Housing Auction market is running hot with 80% of auctioned properties selling, this has only happened 5 times since 2008
• NZ Credit Card spending for March rose 2.0% over February’s -3.2% and equates for a total of 68% of NZ Retail Sales highlighted a good come back
• The Federal Reserve confirmed a rate hike is at least two years away and happy with inflation going above 2.0% for a while
• Italy will rollout a 40B EUR stimulus package with the vaccination rate in Europe set to speed up over the following few months

Read more