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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

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

Tuesday 20/08

• 130pm, AUD, Monetary Policy Meeting Minutes

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Recession Alert- Recession Alert.

Weak Chinese data Wednesday has bought new fears into markets of a potential recession. A sharp decline in Chinese Industrial Production figures and Retail Sales for July has inflicted fresh anxiety and raised alarm bells with numbers representing a deceleration in industrial output – the worst since February 2002. Global growth expectations are driving the easing seen recently by central banks and a broad “risk-off” tone. The global barometer or measure of this is viewed through the 10 year US Treasury price. Right now the 10 year bond is inverted to its lowest level since 2007 at 1.58% and the 2 year at 1.59%. This is the first real time since 2008 we have seen a real chance the US Federal Reserve may struggle to relieve the current economic pessimistic situation as the yield curve reflects overall concerns by investors that economic uncertainties such as the ongoing trade war between China and the US will flow through to consumers impacting future positive data such as GDP and inflation. US CPI inflation surprisingly rose in the month of July to 0.3% m/m up from 0.2% with the y/y rate up to 2.2%. We expect the CPI rate to steadily climb as retail products increase due to increased tariffs and will be passed onto consumers. US equity prices have fallen Wednesday with the S&P down 3.06%, DOW down 3.16% and the Nasdaq also down 3.17% as risk products across the board took hits. Read more

Australia

The RBA left their Cash rate unchanged last week at a record low of 1.0% for at least another month but left the door ajar for further easing after dropping rates in June and July. Lowe laying global risks were ’tilted to the downside”. The RBA will continue to carefully watch progress in the labour market with a rising unemployment with expectations the economy should grow 2.5% from the earlier forecast of 2.7%. Prices in Iron Ore have been supportive of the Aussie Dollar but is not a key driver. Risks in the trade war between China and the US intensified last week and have strained the AUD along with worse than expected Chinese CPI figures Friday with the y/y print dropping from 2.8% to 2.7%. This week’s wage price index followed by Australian unemployment holds the focus this week.

New Zealand

The New Zealand Dollar remains the weakest currency along with the GBP over the month of August. Last week’s downside momentum continued extending the recent pessimistic tone. Adrian Orr cut the overnight cash rate from 1.50% to 1.0% stunning markets, siting heightening global trade tensions based on the NZ economy being heavily exposed to negotiations between the US and China and uncertainty and declining international trade. Also of note was employment which sits at what is deemed maximum achievable levels or full employment after the unemployment dropped from 4.2% to 3.9%. The RBNZ felt that with falling inflation expectations they need to react accordingly to make sure business confidence and sustainable jobs data remains at current levels. The NZ Dollar was sharply devalued but has since recovered off midweek lows. With speculation that a result in the China/US trade war would happen late this year all but a distant memory, helping to support a recovery of sorts in the kiwi, we may see the NZD depreciate further towards the end of 2019. Against the greenback 0.6220 support looks to close for comfort. This week’s NZ data docket is bare. Read more

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

Monday 12/08 

• All Day, JPY, Bank Holiday

Tuesday 13/08

• All Day, GBP, Average Earnings Index 3m/y
  • Forecast 3.70%
  • Previous 3.40%

Wednesday 14/08

• 1230am, USD, CPI m/m
  • Forecast 0.30%
  • Previous 0.10%
• 1230am, USD, Core CPI m/m
  • Forecast 0.20%
  • Previous 0.30%
• 130pm, AUD, Wage Price Index q/q
  • Forecast 0.50%
  • Previous 0.50%
• 830pm, GBP, CPI y/y
  • Forecast 1.90%
  • Previous 2.00%

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CUT, CUT, CUT was the word from the Reserve Bank Governor Orr Wednesday after he cut the official interest rate from 1.50% to 1.00% after experts and markets alike expected only a 25 point shift lower to 1.25%. This is the second time this year the RBNZ has dropped the cash after cutting it to 1.50% in the May meeting. The main reasons for the surprising 50 point cut were, heightening global trade tensions based on the NZ economy being heavily exposed to negotiations between the US and China and uncertainty and declining international trade. Employment is sitting at maximum capacity confirmed on Tuesday after the unemployment fell to 3.9%. The RBNZ feel to sustain this they need lower inflation. Inflation expectations have been dropping as well along with soft business confidence leading to a slowdown in hiring. The New Zealand Dollar fall out of bed on the release from 0.6540 to reach a low of 0.6377 against the greenback before retracing back to around 0.6450.  Read more

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Australia

The Australian Dollar remained under massive pressure at the close of the week. Against its counterparts it has earned the tag of the worst performing currency next to the English Pound falling 3.5% versus the Japanese Yen. Aussie CPI bounced back in the second quarter 2019 to 0.6% after a flat result in quarter one, although underlying inflation remains well below the RBA’s target of 2-3%. We think a further cut of 25 points is likely before the end of the year but not likely at today’s RBA announcement. Anything past 0.75% will depend on upcoming economic data releases with RBA’s Lowe not writing it off. Iron Ore prices have come off from late July prices around 120.00 per ton to trade around 102.00 today, but the biggest threat to the Aussie appears to be the “risk off” sentiment affecting commodity based currencies as new President Trump trade war fears surface again with the US adding new tariffs (10.0%) to 300B worth of Chinese products beginning 1 September. On the positive front Retail Sales published up on expectations Friday after a print of 0.4% from the 0.3% surprising markets. Any small boost to the AUD was overshadowed by Trump news. Crucial consumer sentiment prints tomorrow before unemployment figures Thursday.

New Zealand

The New Zealand Dollar continued its fortnightly quest lower last week dropping across the board against most currencies – over 3.4% versus the Japanese Yen. Uncertainty gripped the kiwi as punters pondered if the Fed would indeed drop rates again in 2019. The RBNZ are widely forecast to cut the cash rate to 1.25% this Wednesday with recent consensus growing that they may cut again later in the year. The ANZ Business Confidence index released at -44.3 much lower than was expected, the lowest since 2008. This data also highlighted possible weaker inflation expectation targets possibly around 2.0% whereas the RBNZ are looking towards a target of 3.0%. Prospects are not yet priced in for a 50 point cut from the current 1.5% but they soon will be. Today’s unemployment rate came in at 3.9% surprising markets after 4.2% was expected for the June quarter. The fall in the unemployment rate reflected a fall of 9,000 in the number of unemployed bringing the total unemployment number down to 109,000 in New Zealand. Read more

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The Federal Reserve cut rates yesterday by 25 points from 2.5% to 2.25%, the first cut by the Fed since 2008. This was a combative move to further stem the global slowdown and continuing China/US trade tensions. Equities sold off over 1% after the announcement with the US Dollar strengthening to fresh highs against all major currencies. Fed chairman Powell, during the post decision statement seemed to aggravate markets with comments suggesting he wasn’t looking to pull the trigger on further easing over the next few months. Powell went on to contradict himself by not ruling out further rate cuts as he “contemplates the future path.” Also announced was the end of the $3.8T asset portfolio, or QE, two months earlier than planned – this is the stimulus that was added after the fallout of the 2008 financial crisis/ recession. Read more